Inventory Management Main Project

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Inventory Management

Inventory management is primarily about specifying the sizeand placement of stocked goods. Inventory management is requiredat different locations within a facility or within multiple locations of asupply network to protect the regular and planned course of production against the random disturbance of running out of materials or goods. The scope of inventory management alsoconcerns the fine lines between replenishment lead time, carryingcosts of inventory, asset management, inventory forecasting,inventory valuation, inventory visibility, future inventory price

forecasting, physical inventory, available physical space forinventory, quality management, replenishment, returns anddefective goods and demand forecasting. Balancing these competingrequirements leads to optimal inventory levels, which is an on-goingprocess as the business needs shift and react to the widerenvironment.

Inventory management involves a retailer seeking to acquireand maintain a proper merchandise assortment while ordering,shipping, handling, and related costs are kept in check. Systems andprocesses that identify inventory requirements, set targets, provide

replenishment techniques and report actual and projected inventorystatus.

Handles all functions related to the tracking and management of material. This would include Management of the inventories, withthe primary objective of determining/controlling stock levels withinthe physical distribution function to balance the need for productavailability against the need for minimizing stock holding andhandling cost.

Implementation of InventoryManagement Systems

An inventory management system can help sales and production

managers control costs by identifying lost sales due to inventoryshortages; inventory overruns on products that are not selling;losses due to obsolescence; and losses due to employee theft ordamage. An inventory management system makes accounting forinventory on the accounting books and annual tax returns a simpleprocess by providing detailed reports with current inventoryvaluation information. Implementing an inventory managementsystem can take a large amount of time, depending on the size anddiversity your inventory.

InstructionsThings You'll Need:

1)Product list

2)Recent product cost

STEPS:

1) Identify every product in your inventory and the most recent pricepaid for the product so that the inventory management system canperform inventory valuation calculations.

2) Select a time for implementation when you can cease businesslong enough to perform a complete audit on inventory and get theentire inventory management system implemented. Depending on

the size and scope of your inventory, you may need a day or a week.Some businesses choose to implement a system overnight or onweekends so they do not interrupt daily business operations.

3) Perform a full audit on all products in stock. Do not includedamaged or obsolete inventory in your count, as those items willeither be returned or destroyed.

4) Enter each product into the inventory management system alongwith the product count from the audit and the most recent price paidfor the product.

5) Print inventory reports and double check your entry to ensure youhave entered all the figures correctly into the inventorymanagement system.

6)Train employees on how inventory is added or removed from thesystem. Some systems add inventory during the accounts payableprocess when paying invoices for products. Some systems havesales managers review the sales receipts for products and log theproducts into the system. Some inventory management systems aretied to sales systems and the inventory automatically reduces asproducts are sold. Some inventory management systems requiremanual entry of products sold based on end-of-day sales reports.Make sure all key personnel understand and are trained to use thenew inventory management system.

Business inventory

1) The reasons for keeping stock

There are three basic reasons for keeping an inventory:

1) Time - The time lags presetainties in demand, supply andmovements

of goods.

2) Economies of scale - Ideal condition of "one unit at a time at aplace where

a user needs it, when he needs it" principle tends to incur lots of

costsin terms of logistics. So bulk buying, movement and storing bringsin economies of scale, thus inventory.All these stock reasons can

applyto any owner or product stage.

3) Buffer stock is held in individual workstations against thepossibility

that the upstream workstation may be a little delayed in longsetup

or change over time. This stock is then used while that

changeoveris happening. This stock can be eliminated by tools like SMED.

These classifications apply along the whole Supply chain, not justwithin a facility or plant. Where these stocks contain the same orsimilar items, it is often the work practice to hold all these stocks

4) Inventory examples

While accountants often discuss inventory in terms of goods forsale, organizations - manufacturers, service-providers and not-for-profits - also have inventories (fixtures, furniture, supplies, ...) thatthey do not intend to sell. Manufacturers', distributors', andwholesalers' inventory tends to cluster in warehouses. Retailers'inventory may exist in a warehouse or in a shop or store accessibleto customers. Inventories not intended for sale to customers or toclients may be held in any premises an organization uses. Stock tiesup cash and, if uncontrolled, it will be impossible to know the actual

level of stocks and therefore impossible to control them.

While the reasons for holding stock were covered earlier, mostmanufacturing organizations usually divide their "goods for sale"inventory into:

1)Raw materials - materials and components scheduled for use inmaking a product .A raw material or feedstock is something that isacted upon or used by or by human labor or industry, for use as abuilding material to create some product or structure. Often theterm is used to denote material that came from nature and is in an

unprocessed or minimally processed state. Iron ore, logs, and crudeoil, would be examples. A non-human related raw material wouldinclude twigs and found objects as used by birds to make nests. InMexican Economics and some industries, the term is used in adistinct sense: raw material is a 'subject of labor', something that willbe worked on by labor that has already undergone some alterationby labour.

In other words it does not apply to materials in their entirelyunprocessed state. Some examples are dimensional lumber, glassand steel.

2)Work in process , WIP - materials and components that havebegun their transformation to finished goods. Work in process(acronym: WIP) or in-process inventory includes the set at large of unfinished items for products in a production process. These itemsare not yet completed but either just being fabricated or waiting in a

queue for further processing or in a buffer storage. The term is usedin production and supply chain management.

Optimal production management aims to minimize work inprocess. Work in process requires storage space, represents boundcapital not disponible for investment and carries an inherent risk of earlier expiration of shelf life of the products. A queue leading to aproduction step shows that the step is well buffered for shortage insupplies from preceding steps, but may also indicate insufficientcapacity to process the output from these preceding steps.

Just-in-time (acronym: JIT) production is a concept to reducework in process with respect to a continuous configuration of product. Just In Sequence (acronym: JIS) is a similar concept with

respect to a scheduled variety in sequence of configurations forproducts.

Barcode and RFID identification can be used to identify workitems in process flow. For locating the products additionalrequirements must be considered to ensure not only presence of work items, but also knowledge of the whereabouts of these items. This is a mandatory condition in flexible production lines withparalleled work positions for single steps of production.

3)Finished goods - goods ready for sale to customers. A good

purchased as a "raw material" goes into the manufacture of aproduct. A good only partially completed during the manufacturingprocess is called "work in process". When the good is completed asto manufacturing but not yet sold or distributed to the end-user, it iscalled a "finished good".

Finished goods is a relative term. In a Supply chain managementflow, the finished goods of a supplier can constitute the raw materialof a buyer.

4)Goods for resale - returned goods that are salable.

For example:

Manufacturing:

A canned food manufacturer's materials inventory includes theingredients to form the foods to be canned, empty cans and theirlids (or coils of steel or aluminum for constructing thosecomponents), labels, and anything else (solder, glue, ...) that willform part of a finished can. The firm's work in process includes thosematerials from the time of release to the work floor until theybecome complete and ready for sale to wholesale or retailcustomers. This may be vats of prepared food, filled cans not yetlabeled or sub-assemblies of food components. It may also includefinished cans that are not yet packaged into cartons or pallets. Its

finished good inventory consists of all the filled and labeled cans of food in its warehouse that it has manufactured and wishes to sell tofood distributors (wholesalers), to grocery stores (retailers), andeven perhaps to consumers through arrangements like factory stores and outlet centers.

Examples of case studies are very revealing, and consistentlyshow that the improvement of inventory management has two parts:the capability of the organisation to manage inventory, and the wayin which it chooses to do so. For example, a company may wish toinstall a complex inventory system, but unless there is a good

understanding of the role of inventory and its perameters, and aneffective business process to support that, the system cannot bringthe necessary benefits to the organisation in isolation.

Typical Inventory Management techniques include Pareto CurveABC Classification and Economic Order Quantity Management. Amore sophisticated method takes these two techniques further,combining certain aspects of each to create The K CurveMethodology. A case study of k-curve benefits to one companyshows a successful implementation.

Unnecessary inventory adds enormously to the working capitaltied up in the business, as well as the complexity of the supplychain. Reduction and elimination of these inventory 'wait' states is akey concept in Lean. Too big an inventory reduction too quickly cancause a business to be anorexic. There are well-proven processesand techniques to assist in inventory planning and strategy, both at

the business overview and part number level. Many of the bigMRP/and ERP systems do not offer the necessary inventory planningtools within their integrated planning applications.

Principle of inventoryproportionality

1) Purpose

Inventory proportionality is the goal of demand-driven inventorymanagement. The primary optimal outcome is to have the samenumber of days' (or hours', etc.) worth of inventory on hand acrossall products so that the time of runout of all products would besimultaneous. In such a case, there is no "excess inventory," that is,inventory that would be left over of another product when the firstproduct runs out. Excess inventory is sub-optimal because themoney spent to obtain it could have been utilized better elsewhere,i.e. to the product that just ran out.

The secondary goal of inventory proportionality is inventoryminimization. By integrating accurate demand forecasting withinventory management, replenishment inventories can be scheduledto arrive just in time to replenish the product destined to run outfirst, while at the same time balancing out the inventory supply of allproducts to make their inventories more proportional, and therebycloser to achieving the primary goal. Accurate demand forecastingalso allows the desired inventory proportions to be dynamic bydetermining expected sales out into the future; this allows forinventory to be in proportion to expected short-term sales orconsumption rather than to past averages, a much more accurate

and optimal outcome.

Integrating demand forecasting into inventory management inthis way also allows for the prediction of the "can fit" point wheninventory storage is limited on a per-product basis.

2) Applications

The technique of inventory proportionality is most appropriate forinventories that remain unseen by the consumer. As opposed to"keep full" systems where a retail consumer would like to see fullshelves of the product they are buying so as not to think they arebuying something old, unwanted or stale; and differentiated fromthe "trigger point" systems where product is reordered when it hits acertain level; inventory proportionality is used effectively by just-in-time manufacturing processes and retail applications where theproduct is hidden from view.

One early example of inventory proportionality used in a retail

application in the United States is for motor fuel. Motor fuel (e.g.gasoline) is generally stored in underground storage tanks. Themotorists do not know whether they are buying gasoline off the topor bottom of the tank, nor need they care. Additionally, thesestorage tanks have a maximum capacity and cannot be overfilled.Finally, the product is expensive. Inventory proportionality is used tobalance the inventories of the different grades of motor fuel, eachstored in dedicated tanks, in proportion to the sales of each grade.Excess inventory is not seen or valued by the consumer, so it issimply cash sunk (literally) into the ground. Inventory proportionalityminimizes the amount of excess inventory carried in underground

storage tanks. This application for motor fuel was first developedand implemented by Petrolsoft Corporation in 1990 for Chevron product Company. Most major oil companies use such systemstoday.

3) Roots

The use of inventory proportionality in the United States isthought to have been inspired by Japanese just-in-time (business) parts inventory management made famous by Toyota Motors in the

1980s.[3]

High-level inventory management

It seems that around 1880 there was a change inmanufacturing practice from companies with relativelyhomogeneous lines of products to vertically integrated companieswith unprecedented diversity in processes and products. Those

companies (especially in metalworking) attempted to achievesuccess through economies of scope - the gains of jointly producingtwo or more products in one facility. The managers now neededinformation on the effect of product-mix decisions on overall profitsand therefore needed accurate product-cost information. A variety of attempts to achieve this were unsuccessful due to the hugeoverhead of the information processing of the time. However, theburgeoning need for financial reporting after 1900 createdunavoidable pressure for financial accounting of stock and themanagement need to cost manage products became overshadowed.In particular, it was the need for audited accounts that sealed the

fate of managerial cost accounting. The dominance of financialreporting accounting over management accounting remains to thisday with few exceptions, and the financial reporting definitions of 'cost' have distorted effective management 'cost' accounting sincethat time. This is particularly true of inventory.

Hence, high-level financial inventory has these two basicformulas, which relate to the accounting period:

1)Cost of Beginning Inventory at the start of the period + inventorypurchases within the period + cost of production within theperiod = cost of goods available.

2) Cost of goods available − cost of ending inventory at the end of the

period = cost of goods sold.

The benefit of these formulae is that the first absorbs alloverheads of production and raw material costs into a value of inventory for reporting. The second formula then creates the new

start point for the next period and gives a figure to be subtractedfrom the sales price to determine some form of sales-margin figure.

Manufacturing management is more interested in inventory turnover ratio or average days to sell inventory since it tells themsomething about relative inventory levels.

Inventory turnover ratio (also known as inventory turns) = costof

goods sold / Average Inventory = Cost of Goods Sold /((Beginning Inventory + Ending Inventory) / 2)

and its inverse

Average Days to Sell Inventory = Number of Days a Year /Inventory Turnover Ratio = 365 days a year / Inventory Turnover

This ratio estimates how many times the inventory turns over ayear. This number tells how much cash/goods are tied up waiting forthe process and is a critical measure of process reliability andeffectiveness. So a factory with two inventory turns has six months

stock on hand, which is generally not a good figure (depending uponthe industry), whereas a factory that moves from six turns to twelveturns has probably improved effectiveness by 100%. Thisimprovement will have some negative results in the financialreporting, since the 'value' now stored in the factory as inventory isreduced.

Whilst these accounting measures of inventory are very usefulbecause of their simplicity, they are also fraught with the danger of

their own assumptions. There are, in fact, so many things that canvary hidden under this appearance of simplicity that a variety of 'adjusting' assumptions may be used. These include:

Specific Identification

Specific Identification is a method of finding out ending inventory cost.It requires a very detailed physical count, so that the companyknows exactly how many of each goods brought on specific datesremained at year end inventory. When this information is found, the

amount of goods are multiplied by their purchase cost at theirpurchase date, to get a number for the ending inventory cost.

On theory, this method is the best method, since it relates theending inventory goods directly to the specific price they werebought for. However, this method allows management to easilymanipulate ending inventory cost, since they can choose to reportthat the cheaper goods were sold first, hence increasing endinginventory cost and lowering Cost of Goods Sold. This method is alsovery hard to use on interchangeable goods. For example, it is hard torelate shipping and storage costs to a specific inventory item. These

number will need to be estimated, and hence reducing the specificidentification 's benefit of being extremely specific

Weighted Average Cost

Weighted Average Cost is a method of calculating Ending Inventory cost.It takes Cost of Goods Available for Sale and divides it by the totalamount of goods from Beginning Inventory and Purchases. Thisgives a Weighted Average Cost per Unit. A physical count is thenperformed on the ending inventory to determine the amount of

goods left. Finally, this amount is multiplied by Weighted AverageCost per Unit to give an estimate of ending inventory cost.

Moving-Average Cost

Moving-Average (Unit) Cost is a method of calculating EndingInventory cost. Assume that both Beginning Inventory and beginninginventory cost are known. From them the Cost per Unit of BeginningInventory can be calculated. During the year, multiple purchaseswere made. Each time, purchase costs are added to beginninginventory cost to get Cost of Current Inventory . Similarly, thenumber of units bought is added to beginning inventory to getCurrent Goods Available for Sale

. After each purchase, Cost of Current Inventory is divided by Current Goods Available for Sale toget Current Cost per Unit on Goods. Also during the year, multiplesales happened. The Current Goods Available for Sale is deducted bythe amount of goods sold, and the Cost of Current Inventory isdeducted by the amount of goods sold times the latest (before thissale) Current Cost per Unit on Goods. This deducted amount isadded to Cost of Goods Sold. At the end of the year, the last Cost perUnit on Goods, along with a physical count, is used to determineending inventory cost.

FIFO and LIFO .

FIFO and LIFO accounting Methods are accounting techniquesused in managing inventory and financial matters involving themoney a company tied up within inventory of produced goods, rawmaterials, parts, components, or feed stocks. FIFO stands for first-in,first-out , meaning that the oldest inventory items are recorded assold first but do not necessarily mean that the exact newest physicalobject has been tracked and sold; this is just an inventory technique.LIFO stands for last-in, first-out , meaning that the most recentlypurchased items are recorded as sold first. Since the 1970s, U.S.companies have tended to use LIFO, which reduces their incometaxes in times of inflation. The difference between the cost of aninventory calculated under the FIFO and LIFO methods is called theLIFO reserve. This reserve is essentially the amount by which anentity's taxable income has been deferred by using the LIFO method.

LIFO liquidation

Notwithstanding its deferred tax advantage, a LIFO inventory

system can lead to LIFO liquidation, a situation where in the absenceof new replacement inventory or a search for increased profits, olderinventory is increasingly liquidated (or sold). If prices have beenrising, for example through inflation, this older inventory will have alower cost, and its liquidation leads to the recognition of higher netincome and the payment of higher taxes, thus reversing thedeferred tax advantage that initially encouraged the adoption of aLIFO system. Some companies who use LIFO have decades-oldinventory recorded on their books at a very low cost. For thesecompanies a LIFO liquidation results in an inflated net income (andhigher tax payments). Companies can use liquidations to manage

their earnings. Also mobile telecom operators either use FIFO or LIFOto allocate remaining call credit a customer did not fully use in abilling period. In telecom terms FIFO is good for the customers whileLIFO is good for the telecom operator. With small amount of carryover duration, call credit is to be lost sooner with LIFO then with FIFOas a customer first uses his old call credit ( that he had left fromprevious month) rather than first needing to use all the new creditbefore using the old call credit.

Inventory Turn is a financial accounting tool for evaluatinginventory and it is not necessarily a management tool. Inventory

management should be forward looking. The methodology applied isbased on historical cost of goods sold. The ratio may not be able toreflect the usability of future production demand, as well ascustomer demand.

Business models, including Just in Time (JIT) Inventory, VendorManaged Inventory (VMI) and Customer Managed Inventory (CMI),attempt to minimize on-hand inventory and increase inventory turns.VMI and CMI have gained considerable attention due to the successof third-party vendors who offer added expertise and knowledge thatorganizations may not possess.

Accounting for inventory

Each country has its own rules about accounting for inventorythat fit with their financial-reporting rules.

For example, organizations in the U.S. define inventory to suit

their needs within US Generally Accepted Accounting Practices (GAAP), the rules defined by the Financial Accounting Standards Board (FASB) (and others) and enforced by the U.S. Securities and Exchange Commission (SEC) and other federal and state agencies.Other countries often have similar arrangements but with their ownGAAP and national agencies instead.

It is intentional that financial accounting uses standards thatallow the public to compare firms' performance, cost accounting functions internally to an organization and potentially with muchgreater flexibility. A discussion of inventory from standard and

Theory of Constraints-based (throughput) cost accounting perspective follows some examples and a discussion of inventoryfrom a financial accounting perspective.

The internal costing/valuation of inventory can be complex.Whereas in the past most enterprises ran simple, one-processfactories, such enterprises are quite probably in the minority in the21st century. Where 'one process' factories exist, there is a marketfor the goods created, which establishes an independent marketvalue for the good. Today, with multistage-process companies, thereis much inventory that would once have been finished goods which

is now held as 'work in process' (WIP). This needs to be valued in theaccounts, but the valuation is a management decision since there isno market for the partially finished product. This somewhat arbitrary'valuation' of WIP combined with the allocation of overheads to it hasled to some unintended and undesirable results.

1) Financial accounting

An organization's inventory can appear a mixed blessing, since itcounts as an asset on the balance sheet, but it also ties up moneythat could serve for other purposes and requires additional expensefor its protection. Inventory may also cause significant tax expenses,depending on particular countries' laws regarding depreciation of inventory, as in Thor Power Tool Company v. Commissioner.

Inventory appears as a current asset on an organization'sbalance sheet because the organization can, in principle, turn it intocash by selling it. Some organizations hold larger inventories than

their operations require in order to inflate their apparent asset valueand their perceived profitability.

In addition to the money tied up by acquiring inventory,inventory also brings associated costs for warehouse space, forutilities, and for insurance to cover staff to handle and protect itfrom fire and other disasters, obsolescence, shrinkage (theft anderrors), and others. Such holding costs can mount up: between athird and a half of its acquisition value per year.

Businesses that stock too little inventory cannot take

advantage of large orders from customers if they cannot deliver. Theconflicting objectives of cost control and customer service often pitan organization's financial and operating managers against its sales and marketing departments. Salespeople, in particular, often receivesales-commission payments, so unavailable goods may reduce theirpotential personal income. This conflict can be minimised byreducing production time to being near or less than customers'expected delivery time. This effort, known as "Lean production" willsignificantly reduce working capital tied up in inventory and reducemanufacturing costs (See the Toyota Production System).

2) Role of inventory accounting

By helping the organization to make better decisions, theaccountants can help the public sector to change in a very positive

way that delivers increased value for the taxpayer’s investment. Itcan also help to incentivise progress and to ensure that reforms aresustainable and effective in the long term, by ensuring that success

is appropriately recognized in both the formal and informal rewardsystems of the organization.

To say that they have a key role to play is an understatement.Finance is connected to most, if not all, of the key businessprocesses within the organization. It should be steering thestewardship and accountability systems that ensure that theorganization is conducting its business in an appropriate, ethicalmanner. It is critical that these foundations are firmly laid. So oftenthey are the litmus test by which public confidence in the institutionis either won or lost.

Finance should also be providing the information, analysis andadvice to enable the organizations’ service managers to operateeffectively. This goes beyond the traditional preoccupation withbudgets – how much have we spent so far, how much do we haveleft to spend? It is about helping the organization to betterunderstand its own performance. That means making theconnections and understanding the relationships between giveninputs – the resources brought to bear – and the outputs andoutcomes that they achieve. It is also about understanding andactively managing risks within the organization and its activities.

3) FIFO vs. LIFO accounting

When a merchant buys goods from inventory, the value of theinventory account is reduced by the cost of goods sold (COGS). Thisis simple where the CoG has not varied across those held in stock;but where it has, then an agreed method must be derived toevaluate it. For commodity items that one cannot track individually,accountants must choose a method that fits the nature of the sale. Two popular methods that normally exist are: FIFO and LIFO

accounting (first in - first out, last in - first out). FIFO regards the firstunit that arrived in inventory as the first one sold. LIFO considers thelast unit arriving in inventory as the first one sold. Which method anaccountant selects can have a significant effect on net income andbook value and, in turn, on taxation. Using LIFO accounting forinventory, a company generally reports lower net income and lower

book value, due to the effects of inflation. This generally results inlower taxation. Due to LIFO's potential to skew inventory value, UK GAAP and IAS have effectively banned LIFO inventory accounting.

4) Standard cost accounting

Standard cost accounting uses ratios called efficiencies thatcompare the labour and materials actually used to produce a goodwith those that the same goods would have required under"standard" conditions. As long as similar actual and standardconditions obtain, few problems arise. Unfortunately, standard costaccounting methods developed about 100 years ago, when labor

comprised the most important cost in manufactured goods. Standardmethods continue to emphasize labor efficiency even though thatresource now constitutes a (very) small part of cost in most cases.

Standard cost accounting can hurt managers, workers, and firmsin several ways. For example, a policy decision to increase inventorycan harm a manufacturing manager's performance evaluation.Increasing inventory requires increased production, which meansthat processes must operate at higher rates. When (not if)something goes wrong, the process takes longer and uses more thanthe standard labor time. The manager appears responsible for the

excess, even though s/he has no control over the productionrequirement or the problem.In adverse economic times, firms use the same efficiencies to

downsize, rightsize, or otherwise reduce their labor force. Workerslaid off under those circumstances have even less control overexcess inventory and cost efficiencies than their managers.

Many financial and cost accountants have agreed for many yearson the desirability of replacing standard cost accounting. They havenot, however, found a successor.

5) Theory of constraints cost accounting

Eliyahu M. Goldratt developed the Theory of Constraints in partto address the cost-accounting problems in what he calls the "cost

world." He offers a substitute, called throughput accounting, thatuses throughput (money for goods sold to customers) in place of output (goods produced that may sell or may boost inventory) and

considers labor as a fixed rather than as a variable cost. He definesinventory simply as everything the organization owns that it plans tosell, including buildings, machinery, and many other things inaddition to the categories listed here. Throughput accountingrecognizes only one class of variable costs: the truly variable costs,like materials and components, which vary directly with the quantityproduced.

Finished goods inventories remain balance-sheet assets, butlabor-efficiency ratios no longer evaluate managers and workers.Instead of an incentive to reduce labor cost, throughput accounting

focuses attention on the relationships between throughput (revenueor income) on one hand and controllable operating expenses andchanges in inventory on the other. Those relationships directattention to the constraints or bottlenecks that prevent the systemfrom producing more throughput, rather than to people - who havelittle or no control over their situations.

National accounts

Inventories also play an important role in national accounts National accounts or national account systems (NAS) provide acomplete and consistent conceptual framework for measuring theeconomic activity of a nation (or other geographic area in the

broader term social accounts). These include detailed underlyingmeasures that rely on double-entry accounting. By construction suchaccounting makes the totals on both sides of an account equal even

though they each measure different characteristics.

While sharingmany common principles with business accounting, nationalaccounts are based on economic concepts.

National accounts broadly present the production, income andexpenditure activities of the economic actors (corporations,government, households) in an economy, including their relationswith other countries' economies, and their wealth. They present bothflows during a period and stocks at the end of a period, ensuring thatthe flows are fully reconciled with the stocks. National accounts alsoinclude measures of the stocks and flows of financial assets and

liabilities (commonly called "financial accounts" or "flow of funds"accounts).

There are a number of aggregate measures in the nationalaccounts, most notably gross domestic product or GDP - which is themost widely used measure of aggregate economic activity in aperiod - disposable income, saving and investment. These aggregatemeasures and their development over time are generally of strongest interest to economic policymakers, although the detailednational accounts contain a rich source of information for economicanalysis, for example in the input-output tables which show how

industries interact with each other in the production process.

For example, in the United States the national income andproduct accounts (NIPA) provide estimates for the money value of income and output respectively per year or quarter, including GDP.NIPA entries are called flows, to indicate that they are measuredover time. Another application is the national balance sheet as toassets on one side, including the capital stock, and liabilities andwealth on the other, measured as of the end of the accountingperiod. Entries here are called stocks, to indicate their accumulationto a point in time, as distinct from a flow, which is measured over

National accounts can be presented in nominal from realamounts, that is, correcting money totals for price changes over

time. Economic growth rates (most commonly the growth rate of GDP) are generally measured in real (constant price) terms.

The accounts are derived from a wide variety of statisticalsource data including surveys, administrative and census data, andregulatory data, which are integrated and harmonized in theconceptual framework. They are usually compiled by nationalstatistical offices and/or central banks in each country, though this isnot always the case, and may be released on both an annual and(less detailed) quarterly frequency.

Two developments relevant to the national accounts since the1980s include the following. Generational accounting is a method formeasuring redistribution of lifetime tax burdens across generations

from social insurance, including social security and social healthinsurance. It has been proposed as a better guide to thesustainability of a fiscal policy than budget deficits, which reflectonly taxes minus spending in the current year.[3] Environmental orgree national accounting is the method of valuing environmentalassets, which are usually not counted in measuring national wealth,in part due to the difficulty of valuing them. The method has beenproposed as an alternative to an implied zero valuation of environmental assets and as a way of measuring the sustainabilityof welfare levels in the presence environmental degradation.[4]

and the analysis of the business cycle. Some short-term

macroeconomic fluctuations are attributed to the inventory cycle.

Distressed inventory

Also known as distressed or expired stock, distressed inventoryis inventory whose potential to be sold at a normal cost has passedor will soon pass. In certain industries it could also mean that thestock is or will soon be impossible to sell. Examples of distressedinventory include products that have reached their expiry date, orhave reached a date in advance of expiry at which the planned

market will no longer purchase them (e.g. 3 months left to expiry),clothing that is defective or out of fashion, and old newspapers ormagazines. It also includes computer or consumer-electronicequipment that is obsolete or discontinued and whose manufactureris unable to support it. One current example of distressed inventoryis the VHS format.

In 2001, Cisco wrote off inventory worth US $2.25 billion due toduplicate orders. This is one of the biggest inventory write-offs inbusiness history.

Inventory credit

Inventory credit refers to the use of stock, or inventory, as

collateral to raise finance. Where banks may be reluctant to accepttraditional collateral, for example in developing countries where land title may be lacking, inventory credit is a potentially important wayof overcoming financing constraints. This is not a new concept;archaeological evidence suggests that it was practiced in AncientRome. Obtaining finance against stocks of a wide range of productsheld in a bonded warehouse is common in much of the world. It is,for example, used with Parmesan cheese in Italy.[10] Inventory crediton the basis of stored agricultural produce is widely used in LatinAmerican countries and in some Asian countries.[11] A preconditionfor such credit is that banks must be confident that the stored

product will be available if they need to call on the collateral; thisimplies the existence of a reliable network of certified warehouses.Banks also face problems in valuing the inventory. The possibility of sudden falls in commodity prices means that they are usuallyreluctant to lend more than about 60% of the value of the inventoryat the time of the loan.In today's hyper-competitive business environment customersatisfaction depends on being able to produce and delivercustomized products in a timely and cost-efficient manner. Delaysensuing from poor production scheduling and stock-outs translateinto lost orders. Over stocking is costly because of the obsolescence

risk and cost of holding inventory. The solution to this challenge is aproduction and inventory management system that coordinatesmanufacturing and inventory activities.

bibliography

1)For Inventory Management

http://www.inventory.com/

http://www.inventorymanagement.net/library/modules.html

http://www.pontisresearch.com/management/business_concepts.html

2)For Time line, Basic encryption techniques and Future.

http://students.cec.wustl.edu/~sam1/wikipedia.html

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Project Report on Inventory Mgmt