Topic 4 Physical Inventory

Topic 4 Physical Inventory

1. Why Maintain Inventory Accuracy

   • Effective Materials Management System
   • Operate Efficiently and Effectively
   • Maintain Customer Service
   • Analyse Inventory
   • How Should it be Measured
     • Ideally should be 100%
       • Tolerance
         • Specification of amount of permissible variance between Inventory Records and Actual Count
         • Necessary as some items mean no variance and some may be difficult or costly to maintain 100% accuracy
         • Basis of Setting
           • Value
           • Critical Nature of Item
           • Availability Time
           • Ability to Stop Production
           • Safety Problems or Difficult to get precise measurement

2. Causes of Poor Inventory Accuracy

   • Poorly Trained Personnel
   • Unsecured Storeroom Resulting in Loss of Inventory
   • Unauthorised Withdrawal/Removal of Material in Storage
   • Inaccurate Transaction Recording
   • Lack Audit Capability
   • Poor Transaction Recording System
   • Consequences
     • Lost Sales
     • Stoppages or Disruption in Production Schedule
     • Excess Inventory
     • Low Productivity
     • Poor Delivery
     • Excess Expediting as People Tend to React to Bad Situation Rather than Planning for the Future

3. Audit Inventory

   • Purpose
     • Detect Inaccuracy
       • First Find Causes
       • Rectify Them
     • Provide Management financial Situation at the end of the year
   • Steps
     • Count the items and record them on the ticket left on the item
     • Verify the count by resampling and recounting
     • Collect tickets and list the item in each department
     • Reconcile inventory records. Update financial statement and rectify inventory records
     • Financially this is job for accountants buy material personal are involved in adjustment of the item
   • Disadvantages
     • Maybe cause production shutdown
     • Labour and Paper Work
     • Personnel may be unfamiliar with the process
     • Pressure to complete inventory
     • May Introduce error
   • Preparation: Housekeeping , identification, training of personnel
     • Ensure smooth and accurate stock intake

4. Cycle Counting

   • Defination
     • Continuously count items throughout the year
     • Physical inventory counting are scheduled so that the items are counted on a prescheduled basis
     • Depending on importance some items are counted frequently and some items are not
   • Frequency
     • History of problems of item
     • Number of transaction in a year
     • Critical nature of item
   • Why is cycle>audit
     • counters are trained to identify errors and change them
     • Use of personnel dedicated to identify errors as they are familiar they can find more errors than"once a year" personnel
     • Timely detection, 1st identify then rectify
     • Minimize or partially reduce loss production
   • Good Times to Count
     • Order placed
     • Order received
     • Order Frequency
     • When Error occured