Inventory Management

Standardized Inventory Catalogue for Spare and Consumable (MRO Items)

ZakiZagena@gmail.com (ZakiZagena) — Wed, 06 May 2009 22:52:44 PDT

Rationalization of inventory is nothing but, creation of standardized inventory catalogue for spares and consumable (MRO Items)

Cataloguing is designed to help industries to manage MRO Items data successfully in order to:

Eliminate itemd duplicates
Uniformity in Item Descriptions
Easy Navigation of Technical Specification Items
Easy identification of similiar items within the plant / across the plants
Better descriptions for effective and efficient procurement / standardized purchasing
Minimize overstocking (swelling ) of inventory
Awareness of high value non moving items / project suprlus
Transmittal of information within and across the plants
Maximize functionalities of enterprise resource planning (ERP) / Enterprise Asset Management (Maximo, SAP, Oracle, J D Edwards, DataStream ....)
enable in e-procurement / e-commerce

Lead Time : Techniques that may be Used to Reduce it

ZakiZagena@gmail.com (ZakiZagena) — Wed, 06 May 2009 00:07:42 PDT

Some techniques that could be applied to improve the lead time and anticipating the uncertainty of lead-time are:

Line of balance (LOB) supplier monitoring
Vendor managed inventory (VMI)
EDI (Electronic Data Interchange)
Business process re-engineering (BPR)
Industry & government initiatives

Line of balance (LOB) supplier monitoring

Here is below an example of Line of Balance (LOB): the suit manufacturer :

Vendor managed inventory (VMI)

The ultimate in customer-supplier relationships
Common in sophisticated supermarkets and fast-moving consumer goods sectors
The retailer's Electronic Point of Sale (EPOS) automatically updates suppliers' files
Suppliers replenish automatically, based on this information (no re-ordering costs)
No purchase agreement; suppliers just agree to maintain minimum service and profit levels for the buyer
Title of the goods may go directly from the supplier to the consumer, by-passing the retailer & saving insurance fees

Electronic data interchange (EDI) and electronic procurement

Electronic operation of technical and commercial transactions between companies
Advantages of EDI

Speeds up reaction times and reduces cycle times.
Reduces errors, inventory and administration costs.

Disadvantages of traditional EDI

High implementation & support costs
Needs all parties to co-ordinate their message and data vocabularies in this area
Requires a flexible and empowered organisational structure with delegated responsibility and accountability to achieve the maximum benefit.

Now EDI is available over the internet

Dedicated lines no longer needed
No need to invest in same hardware / software platforms
Reduced cost & time of programming software interfaces
Large increases in efficiency and effectiveness can be achieved

Business Process Re-engineering: making way for composite lead-time reduction

Industry & government initiatives: Efficient Consumer Response (ECR)

The water tank model of inventory

ZakiZagena@gmail.com (ZakiZagena) — Wed, 06 May 2009 00:07:57 PDT

The water tank model of inventory could clear and simply figures ot how much inventory to hold?

Keep inventory (water in the tank) lower, by:

• Keeping the person controlling the input pipe in contact with the person controlling the output pipe...

• …and with the persons knowing the demand for water.

The above figure show the balance the input and output in the water tank model of inventory:

Reasons for keeping inventory

ZakiZagena@gmail.com (ZakiZagena) — Wed, 18 Mar 2009 02:13:10 PDT

• Demand forecast error

• Unpredictable or late deliveries from suppliers

• Minimum supplier order quantity

• Supplier delivery interval

• Stocking methodology

• Reorder interval & quantity

• Strategic stocking

• Purchase price advantage

• Lead-times offered to customers are shorter than supplier lead-times

• Consignment stocking

• Minimisation of delivery costs

• Pipeline inventory

• Anticipation or precautionary stocks

Where to keep inventory?

ZakiZagena@gmail.com (ZakiZagena) — Wed, 18 Mar 2009 02:14:25 PDT

· Location of warehouses

· Location of inventory in the supply chain

o Customer managed inventory - suppliers keep finished goods inventories at their customers' premises

§ •The customer pays for the goods as these are used Re-ordering is automatic, avoiding supplier- invoicing costs

§ The customer pays for the storage space

§ Limits the supplier's flexibility & reduces its turnover

o Vendor managed inventory - the buyer outsources its inventory management operations to the supplier

§ When the supplier has specialised expertise that the buyer lacks

§ The supplier monitors the buyer's stock & replenishes automatically

§ The supplier can own the stock and pay the buyer (e.g., a super-market) a percentage of profit for selling it.

o Cross-docking operations - orchestrate bulk incoming deliveries to quickly mix outgoing batches

Where is inventory kept in your supply chains?

Sketch the supply chain for one product produced or sold by your enterprise or one with which you are familiar. Include your supplier's supplier and your final consumer.

Identify where finished goods and incoming materials are stored. What is the cause of the inventory build-up at those locations and can it be avoided?

The role of the Inventory Manager

ZakiZagena@gmail.com (ZakiZagena) — Wed, 18 Mar 2009 02:33:00 PDT

· Optimising inventory levels
· Reducing holding costs and parts variety
· Reaching or surpassing international quality and traceability standards
· Maximising service levels and inventory turnover while minimising error rates

Financial implications of holding inventory

ZakiZagena@gmail.com (ZakiZagena) — Wed, 18 Mar 2009 02:15:00 PDT

The cost of money "tied up" in stock
Fixed storage costs
Variable storage costs
Inventory management costs
Stock deterioration, loss and obsolescence

The cost of not holding enough inventory

ZakiZagena@gmail.com (ZakiZagena) — Fri, 13 Mar 2009 03:24:36 PDT

Loss of sales from delay in supply

Loss of goodwill and delayed payment from customers if orders are not delivered in full

Higher transportation costs to fill "rush" orders

Disruption of the production process

Inefficient production scheduling

Purchasing of small volume supplies at high prices to meet shortages

Quality or specification differences due to the need to call upon other sources

The History of Inventory Management

ZakiZagena@gmail.com (ZakiZagena) — Fri, 13 Mar 2009 03:01:36 PDT

The urge to make the flow of goods and services more efficient is perhaps identical with the urge of civilization itself. The world's earliest known writing (-5300 years) described inventory owners, amounts, and suppliers (Dr. Gunter Dreyer of the German Institute of Archaeology ).

Inventory control goes back further than writing there were simpler inscriptions in Egyptian and Babylonian warehouses and granaries, with pictures that represented the inventory owner and numbers representing amounts in stock and taxes due.

The tomb labels of Abydos and the granary cuneiforms of Babylon, were primal versions of the humble SKU, which then inspired the development of methods of tracking and inventory information disbursement. The progression of inventory records shows a drive for greater and greater durability, accuracy, and level of convenience. The desire for reliable, accurate, and fast inventory accounting has led to the development of inventory accounting software, a mechanized version of the ancient record-keeping scribe who once scratched IDs into bits of bone to assist with a task human memory was unable to handle.

Alexander the Great and his father Phillip were noted for having greatly lightened the old baggage trains that had been the standby of earlier warriors, making soldiers carry their supplies on their own backs, allowing them to march further and faster than the Persians. A superpower is not measured by how many nuclear weapons it can build, but by how much it can manufacture and how fast it can ship stock to all parts of the world.

Barcode scanners went into field use in 1974. By the 1980s the first inventory control computer programs that could run on a PC were starting to see use.

Inventory position in the Company Working Capital Cycle

ZakiZagena@gmail.com (ZakiZagena) — Fri, 13 Mar 2009 00:23:32 PDT

Efficient inventory management is important to a company because of its position in the working capital cycle...

At least inventory management involved in this three cycle:

Inventory of raw materials:
Work Progress inventory
Inventory of finished goods

Money tied up in inventory is costly “dead money”. It cannot be used for other more productive purposes...
…but the need to hold inventory is often avoidable!

The below figure shows the position of inventory in the company working capital cycle.

Lead Time Management

ZakiZagena@gmail.com (ZakiZagena) — Thu, 12 Mar 2009 02:03:29 PDT

Composite of lead-time:

Buyer’s internal lead-time
Supplier’s lead-time
Logistics delivery lead-time

Long lead-times will increase supply uncertainty and and cause high safety stock costs.

Therefore in the lead time management:

Lead-time can be managed - a crucial, but often neglected aspect of inventory control
Direct and frank communications with supplier/customer production managers
Resource planning systems integrated throughout the supply chain across a communications network like the Internet
Not reactive, but Proactive lead-time monitoring & reduction techniques

Three Mathematical Models for Determining Order Quantity

ZakiZagena@gmail.com (ZakiZagena) — Wed, 11 Mar 2009 00:37:35 PDT

n Economic Order Quantity (EOQ or Q System)

n An optimizing method used for determining order quantity and reorder points

n Part of continuous review system which tracks on-hand inventory each time a withdrawal is made

n Economic Production Quantity (EPQ)

n A model that allows for incremental product delivery

n Quantity Discount Model

n Modifies the EOQ process to consider cases where quantity discounts are available

Inventory Control Method: Flow Control System

ZakiZagena@gmail.com (ZakiZagena) — Wed, 11 Mar 2009 00:27:26 PDT

The "flow control" method of managing inventories is a special variation of the cyclical system. This special method is applicable in continuous manufacturing operations that produce the same basic product in large quantities day after day. Most materials used in such an operation are purchased on term contracts and scheduled for daily or weekly delivery throughout the term. The production cycle is often a day or less in duration, and, in effect, material flows through the plant in continuous streams. Inventory floats consequently can be kept quite low, thus requiring a minimum investments in production inventory

In such an operation, an open stores system is used for most production materials, and the individual items are stored on the line near the point of use. Stores personnel visually review the level of all material stocks daily and report any imbalances to the purchasing or production control department. Changes in production schedules must be relayed immediately to buyers so that delivery schedules can be revised accordingly.

Inventory Control Method: Cyclical or Fixed Order Interval System

ZakiZagena@gmail.com (ZakiZagena) — Wed, 11 Mar 2009 00:28:12 PDT

The cyclical system, or fixed order interval system as it is sometimes called, is the oldest and simplest of the system now found in use. However, cyclical system is not widely used anymore today except in smaller and medium-size operations.

Operationally, the cyclical system work like this. It is a time-based operation which involves scheduled periodic reviews of the stock level of all inventory items.

Looking at it in manufacturing setting, when the stock level of a given item is not sufficient to sustain the production operation until the next scheduled review, an order is placed to replenish the supply. The frequency of review is determined judgmentally and varies with the degree of control desired by management; A items might be reviewed weekly (or more often), B items monthly or bimonthly, and C items quarterly or semiannually.

Stock level can be monitored by physical inspection, by visual review of most perpetual inventory record cards, or by automatic computer surveillance.

When to Order in cyclical or fixed order interval system ?

When to order in this method of inventory control system is answered or controlled by the review dates established by the inventory manager. If material usage has remained reasonably stable, an order is usually place each time the item is reviewed. The order date decision is also impacted by the quantity previously ordered.

How much to order in this type of inventory control ?

How much to order in this method is generally determined by three factors:

1. the number of days between reviews

2. the anticipated daily usage during the cycle period

3. the quantity actually on hand and on order at the time of the review

One of the primary reasons this system is used is to control high-value items closely and to maintain a relatively low investment in inventory. Hence, the order quantity typically is the quantity required to cover only the ensuing period, with allowance for order lead time. Occasionally a two or three period supply is ordered, but not as a rule.

What is the Stock Level set in this method ?

Generally a small safety stock is carried in this method. The safety stock level is based on the observed lead time variability. Inventory levels and tightness of control are thus determined by the establishment of the period of the cycle. High-value A and B items typically are placed on short cycles and C items on longer cycle.

Where mostly this method works ?

This inventory control system can be used with both dependent demand and independent demand materials. It woks most effectively in an organization that has a continues operations function, manufacturing or service, in which demand is fairly stable and can be predicted with reasonable accuracy. Additionally, it is probably the most efficient system to use for independent demand items that experience irregular or seasonal demand and for any items whose purchases must be planned months in advance because of infrequent supplier production schedules. In these case it tends to keep inventory levels lower than would be possible with the other applicable systems. When used for materials with these characteristics, however, the system must be augmented with a minimum balance figure which signals the need for an early reorder in the case of a sharp usage increase.

Conclusion:

To conclude, the cyclical system finds its greatest usage in organizations that have large numbers of independent demand items to control, or in relatively simple process operations where dependent item demand can be projected easily from the production schedule. When used for dependent demand items in an intermittent manufacturing operation, it becomes difficult to determine cycle period demands if many product are involved or if individual items are used in several different products. The bill of materials explosion and time-phasing capabilities of an MRP system must all be handled manually in the cyclical system. As product complexity increase, this becomes a virtually impossibility, so historical demand data tend to become the basis for order quantity determination – and this soon leads to unreasonably high inventory levels because of the uncertainties associated with near-term demand. For these reasons, MRP systems have replaced most cyclical system in intermittent manufacturing operations.

Types of Inventory Control Systems

ZakiZagena@gmail.com (ZakiZagena) — Wed, 11 Mar 2009 00:28:23 PDT

Generally, there are four types of inventory control systems that commonly used , i.e:

Cyclical or Fixed Order Interval system
JIT (Just in Time) approach,
MRP (Material Requirement Planning)-type system
Order Point or Fixed Order Quantity system.

Detail of those four system are explained in different posting in this blog.

Each of those system monitors and controls inventory levels. And each system, based on its own unique characteristic, provides the inventory manager with information that helps answer the two basic question in the control of inventory replenishment, i.e. when to order and how much to order.

Internal Material Identification System

ZakiZagena@gmail.com (ZakiZagena) — Wed, 11 Mar 2009 00:28:37 PDT

Internal Material Identification System

Literally hundreds of similar but unique internal material identification system are used in industry today. However, most firms follow some type of symbolic approach in designing the system. Symbolic systems can be either numerical or mnemonic.

Numerical System

A numerical system typically assigns a six-to-ten-digit code number to each item. The first several numbers usually indicate the classification to which the item belongs, the next several numbers typically indicate the subclass, and the last three numbers are usually uncoded.. The following example illustrates the concept:

2	137	019	508
General Class	Generic Class	Subclass	Specific Item Number

This ten-digit code number is one firm's stock number for a 1/4 –by ¾-inch stainless steel square-neck carriage bolt. The first digit indicates that the item is a purchased part, in accordance with the following general classification:

1. Raw materials

2. Purchased parts

3. Manufactured parts

4. Work in process

5. MRO supplies

The next three digits indicate the generic classification of the item. In this case it is a fastener, code number 137; it might have been a bearing, a pulley, a pump, or an electric motor. All items are generically classified by their nature and carry a number from 000 to 999.

The next three digits indicate the subclass to which the item belongs. In this case, number 019 is a carriage bolt with a square neck. It might have been a machine screw, a rivet, or a nut. All fasteners are subclassified into a class bearing a number from 000 to 999.

The last three digits indicate the specific part number of the item. In this case, all part numbers under 500 designate plain steel, and numbers over 500 represent various alloys; 508 is stainless steel, ¼ by ¾ inch. Other dimensional details can be determined only by referring to the inventory catalog.

This example and similar systems provide a complete and ordered framework within which all materials can be identified uniquely

Mnemonic System

A mnemonic system functions much like a numerical system. However, it combines numeric and alphabetic notations in its symbols. For example, the preceding carriage bolt might be described this way in a mnemonic system:

BCS

508

P denotes a purchased part, Fa is fastener; BCS stands for bolt, carriage, with a square neck; and 508 represents the specific number of the bolt.

Mnemonic systems, particularly where a small number of items are involved, frequently make visual identification easier because they are more descriptive and are often shorter. As more and different types of items are added to the inventory, however, this advantage diminishes because the number of good symbols is limited.

Some firms identify the stock parts manufactured to their own engineering specifications by using engineering drawing number as the part number. This system is effective because it is simple and it directly references the technical data source for the part. Moreover, it simplifies interdepartmental communications because all departments can easily use the same system. On the other hand, the system has the disadvantage of not having sequential numbers assigned to items in the same generic class. Drawing numbers usually are assigned sequentially as new designs are created, regardless of the type of product involved. Additionally, since this system covers primarily manufactured parts, a separate system must be devised to handle purchased parts and component.

External Material Identification Systems

ZakiZagena@gmail.com (ZakiZagena) — Wed, 11 Mar 2009 00:29:13 PDT

The two external material identification systems most commonly used in international business are:

· The Harmonized Commodity Description and Coding System

· The Export Commodity Control Numbers (ECCN) System

The Harmonized system provides a set of description and six-digit codes for commodity identification, description, and reporting. It also contains an option for addition of four more digits to provide more local detail. This is perhaps the most widely used of the two international systems.

The Export Commodity Control Numbers system consists of product numbers that take the form of a five-character alphanumeric code. This system is set primarily for security-sensitive materials requiring export control.

Material Identification System

ZakiZagena@gmail.com (ZakiZagena) — Wed, 11 Mar 2009 00:25:55 PDT

In a broad sense, there are two types of material identification systems-those designed primarily for external use and those designed for internal use.

The systems designed for external use have as their objectives the facilitation of sales transactions (buyers and supplies using common identification codes) and material reporting activities required in international trade.

As the name implies, internal systems are designed with enough detail to communicate unequivocally the identification and description of materials to all using departments within the organization-from design engineering to operations to purchasing and supply accounting.

Can the same system be used for both external and internal purposes ? It may be possible, but few if any firms do. The basic difficulty is that most firms want their internal system to contain as much detail as possible to fulfill their own unique needs. And system used for external purposes tend to be somewhat more attenuated, focusing on product and material types, rather than on specific items, detailed characteristics, and so on.

2 Main Functions of Inventory Catalog

ZakiZagena@gmail.com (ZakiZagena) — Wed, 11 Mar 2009 00:29:25 PDT

An easily accessible materials catalog of approved standard items greatly aids the firm's design efforts. The availability of such a catalog virtually eliminates the possibility that designers will utilize materials which previously caused problems. Careful preparation and maintenance of such a catalog pays two important dividens.

1. First; Inventory catalog serves as medium communication.

It enables personnel located in many different departments to perform their jobs more effectively. A design engineer, for example, may have a choice between using either of two standard pats in an experimental design; an inventory catalog quickly tells whether either part is carried in inventory and may be available immediately for use in the experimental work. Suppose the item in question is to be used in large quantities on the production line. If one of the alternative parts is a stock item and the other is not, the engineer knows immediately that procurement item and cost will probably be lower for the part which already is being purchased and used elsewhere in the plant.

A further example, envision a mechanic who has just removed a faulty bearing from a major production machine that has broken down. Upon examination, the mechanic finds the manufacturer's name and part number stamped on the edge of the bearing. Unfortunately, though, the storeroom clerk cannot help, because that particular bearing is not carried in stock. If the mechanic or a supervisor consult the inventory catalog, however, they may well find that a satisfactory substitute bearing, carried under another manufacturer's part number is in stock. Proper cross-indexing in the inventory catalog can inform users about common interchangeable parts, a typical situation with many MRO supplies.

2. Second; A significant benefit produced by an inventory catalog accrues to the inventory control operation itself.

This benefit takes the form of more complete and correct records through the reduction of duplicate records for identical parts. A purchasing department often bys the same part from several different suppliers, under various manufacturers' part numbers. Unless control requirements dictate otherwise, identical parts from all suppliers should be consolidated on one inventory record. A simple situation? Perhaps, but one is amazed to find in highly reputable companies many similar cases in which two r more inventory records bear different numbers for the same part. A carefully constructed catalog significantly reduces the possibility of such problems.

Dependent and Independent Demand

ZakiZagena@gmail.com (ZakiZagena) — Fri, 13 Mar 2009 02:45:34 PDT

An item is said to exhibit dependent demand characteristics when its use is directly dependent on the scheduled production of a larger component or parent product of which the item is a part. Hence, in a plant producing automobile engines the demand for engine block casting is a dependent demand; once the production schedule for a group of engines is established, the planner knows with certainty that one block will be required for each engine. In some industries, dependent demand sometimes called program items.
Conversely, the demand for cutting oil used by the machines on the line cannot be calculated accurately from the production schedule and bills of materials; thus, cutting oil is said to have an independent demand.
Generally speaking, in an assembly or fabrication-type operation, most production inventory items will have a dependent demand, while MRO and similarly used items will have an independent demand.
Although the distinction seems relatively simple, it is important for the inventory manager to know whether an item exhibits a dependent or an independent demand. Certain inventory control system function more effectively with one type of item than with the other.

The Role of Inventory in Supply Chain

ZakiZagena@gmail.com (ZakiZagena) — Fri, 13 Mar 2009 02:45:54 PDT

Inventory exist s in the supply chain because of a mismatch between supply and demand. This mismatch is intentional at a steel manufacturer where it is economical to manufacture in large lots that are then stored for future sales. The mismatch is also intentional at a retail store where inventory is held in anticipation of future demand. An important role that inventory plays in the supply chain is to increase the amount of demand that can be satisfied by having product ready and available when the customer wants it. Another significant role inventory plays is to reduce cost by exploiting any economics of scale that may exist during both production and distribution.

Inventory is spread throughout the supply chain from raw materials to work in process to finished goods those suppliers, manufacturers, distributors, and retailers hold. Inventory is a major source of cost in a supply chain and it has a huge impact on responsiveness. If we think of the responsiveness spectrum, the location and quantity of inventory can move the supply chain from one end of the spectrum to the other. For example, an apparel supply chain with high inventory levels at the retail stage has a high level of responsiveness because a customer can walk into a store and walk out with the shirt they were looking for. In contrast, an apparel supply chain with little inventory would be very unresponsive. A customer wanting a shirt would have to order it and wait several weeks or even months for it to be manufactured, depending on how little inventory existed in the supply chain.

Inventory also has a significant impact on the material flow time in a supply chain. Material flow time is the time that elapses between the points at which material enters the supply chain to the point at which it exist. Another important area where inventory has a significant impact is throughput. For a supply chain, throughput is the rate at which sales occur. If inventory is represented by I, flow time by T, and throughput by D, the thee can be related using Little's law as follows:

I = DT

For example, if the flow time of an auto assembly process is ten hours and the throughput is 60 units an hour, Little's Law tells us that the inventory is 60 x 10 = 600 units. If we were able to reduce inventory to 300 units while holding throughput constant, we would reduce our flow time to five hours (300/60). We note that in this relationship, inventory and throughput must have consistent units.

The logical conclusion here is that inventory and flow time are synonymous in a supply chain. managers should use actions that lower the amount of inventory needed without increasing cost or reducing responsiveness, because reduces flow time can be a significant advantage in a supply chain.

The Necessary for Physical Inventory

ZakiZagena@gmail.com (ZakiZagena) — Fri, 13 Mar 2009 02:45:44 PDT

No matter how diligently a storekeeper performs the custodial job or how carefully an inventory control clerk maintains records
(computerized or manual), some discrepancy between the actual and the book balances of inventories is bound to occur. The system is operated by people, and people occasionally make mistakes. For this reason, every inventory items should be counted physically and checked against its book balance at least once a year. The books subsequently are adjusted to match the actual count.

Most companies create an ?inventory short and cover?, account to absorb such discrepancies; this account is eventually closed into the manufacturing overhead account.

Use of a bar coding receiving/inventory system can markedly reduce the time required to take the physical inventory. If the inventory items or their storage locations have been previously bar coded, the task can be accomplished with a portable laser scanner and hand-held data terminal. The scanner is used to identify the item, and the count is entered into the data terminal, which is later uploaded into the computerized inventory system.

Physical Inventory Method

ZakiZagena@gmail.com (ZakiZagena) — Fri, 13 Mar 2009 02:45:18 PDT

From a scheduling point of view, the physical inventory can be conducted in one of these three ways:

Fixed annual inventory. Many companies take physical inventory annually at the close of the fiscal year. This necessitates shutting down the production operation and organizing a special crew for the inventory job.
Cycle count or continuous inventory. At the beginning of each year some firms divide their inventory into fifty-two equal groups and assign one of the fifty-two groups to be physically counted each week. Thus, the physical inventory operation goes on continuously without interrupting the production operation or upsetting storeroom activities.
Low-point inventory. Some companies take physical inventory irregularly, whenever the stock level of an item reaches its lowest point.

All the above three methods are widely used. The selection of the most appropriate one depends largely on conditions in each individual business.

The fixed annual inventory can be troublesome because it is a major task which must be accomplished in a short period of time. However, it is ideal for seasonal businesses or for businesses that completely close down for an annual vacation or equipment maintenance check.

The cycle count inventory approach has two major advantages. It can be planned and worked into scheduled activities without a shutdown. And it can be conducted in an orderly and relaxed manner, which is conducive to accurate work. It has the additional advantage of early detection and elimination of basic causes of errors that might otherwise continue throughout the year. This approach also facilitates efficient utilization of stores personnel. In many storerooms, withdrawals are heavy early in the day and much lighter later on. Thus, when the stock clerks? normal work slacks off, they always have a backlog of inventory work to do.

The low-point approach minimizes the time required for actual inventory work because of the small quantities of materials involved. However, it has the disadvantage of producing an irregular inventory schedule, which tends to peak the workload for stores personnel.

Finally, before developing the details of any physical inventory method, a company should consult the accounting firm that audits its books. A company must be able to demonstrate to auditing firms, and to local and federal tax officials, that the method finally selected is capable of producing accurate inventory reports.

Types of Physical Inventory

ZakiZagena@gmail.com (ZakiZagena) — Fri, 13 Mar 2009 03:20:45 PDT

From a scheduling point of view, the physical inventory can be conducted in one of these three ways:

Fixed annual inventory. Many companies take physical inventory annually at the close of the fiscal year. This necessitates shutting down the production operation and organizing a special crew for the inventory job.

“Cycle count” or continuous inventory. At the beginning of each year some firms divide their inventory into fifty-two equal groups and assign one of the fifty-two groups to be physically counted each week. Thus, the physical inventory operation goes on continuously without interrupting the production operation or upsetting storeroom activities.

Low-point inventory. Some companies take physical inventory irregularly, whenever the stock level of an item reaches its lowest point.

All the above three methods are widely used. The selection of the most appropriate one depends largely on conditions in each individual business.

The fixed annual inventory can be troublesome because it is a major task which must be accomplished in a short period of time. However, it is ideal for seasonal businesses or for businesses that completely close down for an annual vacation or equipment maintenance check.

The cycle count inventory approach has two major advantages. It can be planned and worked into scheduled activities without a shutdown. And it can be conducted in an orderly and relaxed manner, which is conducive to accurate work. It has the additional advantage of early detection and elimination of basic causes of errors that might otherwise continue throughout the year. This approach also facilitates efficient utilization of stores personnel. In many storerooms, withdrawals are heavy early in the day and much lighter later on. Thus, when the stock clerks’ normal work slacks off, they always have a backlog of inventory work to do.

The low-point approach minimizes the time required for actual inventory work because of the small quantities of materials involved. However, it has the disadvantage of producing an irregular inventory schedule, which tends to peak the workload for stores personnel.

Finally, before developing the details of any physical inventory method, a company should consult the accounting firm that audits its books. A company must be able to demonstrate to auditing firms, and to local and federal tax officials, that the method finally selected is capable of producing accurate inventory reports.

Objective of a Stock

ZakiZagena@gmail.com (ZakiZagena) — Wed, 04 Mar 2009 20:13:28 PST

The first and main management objective of a Stock is:
To have goods (enough, the right ones, in good condition) available to ensure safe and smooth operation and continuous production.

The second management objective of a Stock is:
To keep the stock at a minimum level due to the large overheads costs involved.

Important Note:
The second objective has to be considered only when the first one is perfectly achieved.

Here is some objective based on different view from various actors involved in stock matters, i.e.:

Stock Controllers “objectives”
To achieve and report ‘’good performances’’.
>> To have minimum stock level.
>> Problem = Risk for Operation and Production >> $$$$.

Buyers “objectives”
To get unit costs as low as possible.
>> To purchase higher quantities to benefit from volume effect.
>> Problem = Stock level increase. Possession cost increase.

Users “objectives”
To have no shortage of equipment.
>> To have maximum stock level and high safety stock.
>> Problem = Stock level increase. Possession cost increase.

Conclusion:
People involved in stock matters have different views/objectives.
Challenge is : To find the right balance !