Intended learning outcomes: Differentiate between perpetual inventory and book inventory. Produce an overview on the sources of planned and actual inventory transactions.
Inventory management includes — among other things — the tasks involved in the handling of inventory transactions.
An inventory transaction alters the stored or in-process inventory. This can be a planned or executed inventory transaction.
Perpetual inventory is an inventory record-keeping system where each transaction in and out is recorded and a new balance is computed.
Book inventory is an accounting definition of inventory units or value obtained from perpetual inventory transaction records rather than by actual (physical) count (cf. [ASCM22]).
Figure 11.1.2.1 shows an overview of the types and origins of important inventory transactions in an industrial organization, both planned (for example, an allocation) and executed.
Fig. 11.1.2.1 Overview of the sources of planned and actual inventory transactions.
An exact and well-documented book-inventory recording system is the basis of all inventory management. Appropriate organizational measures must make it possible to record accurate, up-to-date information on book inventory, even with thousands of transactions per week and numerous employees. Book inventory should either equal physical inventory or deviate from it in a controllable and traceable manner. Measures to this purpose include:
- Ensuring that there are no uncontrolled inventory issues or receipts. Generally, this means that there will be “closed,” or separate, warehouses or accurately controlled buffers, such as in container units. Transactions are recorded at the moment the goods leave or enter the warehouse. It is important to keep the administrative costs low for putting into and issuing from stock for inexpensive parts (screws, nuts, springs, and the like). For this reason, decentralized small-parts stocks are often located directly at the production facilities.
- Guaranteeing the identification of goods by accurate specification of item identification and storage location. This is one of the main purposes of automated inventory organization through, for example, IT-supported warehouse transport systems. Interactive verification guarantees accuracy without the use of paper records. Inventory management should perform plausibility tests, such as:
- Firstly, correct item identification. A number can contain control digits. This avoids recording errors such as reversed digits or data entry of, say, a 2 rather than a 3.
- Secondly, correct quantity. The transaction quantity (receipt or issue) should be below a particular amount. This limit quantity should either be defined manually or adjusted continually in dependency upon the average inventory movement (receipts or issues). In doubtful cases, an IT-supported system can request explicit double entry of quantities.
With tangible goods, bar codes can collect item identification. However, if the transaction quantity deviates from the planned quantity, it must be registered manually. This contrasts with product sales in the grocery or clothing industries, where each issue represents exactly one unit quantity, making quantity recording unnecessary.
To avoid recording lists of components for a production order, recording is required only for deviations from the picking list. The other positions are booked automatically by using the allocated quantity as the issued quantity as soon as the picking list is designated as issued.
Course section 11.1: Subsections and their intended learning outcomes
11.1 Stores and Inventory Management
Intended learning outcomes: Present characteristic features of stores management. Produce an overview on inventory transactions. Describe physical inventory and inventory valuation.
11.1.1 Characteristic Features of Stores Management
Intended learning outcomes: Present in detail characteristic features such as storage location ID, storage type, valuation basis, stock organization, embedding in the flow of goods, storage management principle, inventory issuance principle, and inventory control principle.
11.1.2 Inventory Transactions
Intended learning outcomes: Differentiate between perpetual inventory and book inventory. Produce an overview on the sources of planned and actual inventory transactions.
11.1.3 Physical Inventory and Inventory Valuation
Intended learning outcomes: Identify physical inventory, inventory adjustment, and inventory valuation. Present an example of a stock inventory list.
11.1.3b Periodic Inventory and Cycle Counting
Intended learning outcomes: Differentiate between the periodic physical inventory procedure and the cycle counting procedure.
