Inventory Management - Virginia

Inventory Management What Am I Going to do with All this Stuff?

Presented by Andrew W. Repak, CPA, CMA, CFM, VCO

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Logistics

• lo·gis·tics ləˈjistiks/, noun, the detailed coordination of a complex operation involving many people, facilities, or supplies. synonyms:organization, planning, plans, management, arrangement, administration, orchestration, coordination, execution, handling, running "the logistics of deploying forces in the field“

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Department of Accounts (DOA) Guidance

• Topic No. 30505, Physical Inventory • Topic No. 30515, Supplies and Materials Inventory

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•The most important thing

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•The most important thing •Types of operations

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•The most important thing •Types of operations •Inventory systems

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•The most important thing •Types of operations •Inventory systems •Inventory processes

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•The most important thing •Types of operations •Inventory systems •Inventory processes •Performance measurements

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•The most important thing •Types of operations •Inventory systems •Inventory processes •Performance measurements •Obsolescence

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THE MOST IMPORTANT

THING

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The Most Important Thing

Know Your Customers

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Types of Operations

Warehouse

Distribution Center

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Types of Operations

Warehouse • Static storage

Distribution Center • Focus on distributing items

quickly

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Types of Operations


• Slower turn around


quickly • Faster turn around

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Types of Operations


• Slower turn around • Higher holding costs


quickly • Faster turn around • Lower holding costs

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Types of Operations


• Slower turn around • Higher holding costs • Tie up funds


quickly • Faster turn around • Lower holding costs • Less funds tied up

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Types of Operations


• Slower turn around • Higher holding costs • Tie up funds • Inventory for emergency use


quickly • Faster turn around • Lower holding costs • Less funds tied up

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Type of Operation - Simple

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Type of Operation - Complex

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Physical Safety and Security

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•Protect employees and visitors from injury

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•Protect employees and visitors from injury •Personal protective equipment (PPE)

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•Protect employees and visitors from injury •Personal protective equipment (PPE) •Material Handling Equipment (MHE)

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•Protect employees and visitors from injury •Personal protective equipment (PPE) •Material Handling Equipment (MHE) •Slips and trips

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•Protect employees and visitors from injury •Personal protective equipment (PPE) •Material Handling Equipment (MHE) •Slips and trips •Inventory on shelves or racking

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•Protect employees and visitors from injury •Personal protective equipment (PPE) •Material Handling Equipment (MHE) •Slips and trips •Inventory on shelves or racking •Hazardous materials

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•Protect the inventory from theft

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•Protect the inventory from theft •Control access to storage areas

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•Protect the inventory from theft •Control access to storage areas •Security cameras

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•Protect the inventory from theft •Control access to storage areas •Security cameras •Guards

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Inventory Systems

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Inventory Systems

•Perpetual

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Inventory Systems

•Perpetual •Periodic

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Inventory System – Paper Records

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Inventory System – Paper Records

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Inventory System – Excel Spreadsheet

Widget Thingamabob Dodad WhatchamajigIn Stock 14 16 22 4Beginning Balance 10 15 20 25Tom -1 -3Dick -4 -3Harry -10George -8Purchase 5 5 5 5Sam (return) 3Pete -8

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Inventory System - COTS

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Inventory Processes

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Inventory Processes

•Receiving

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Inventory Processes

•Receiving •Quality Assurance

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Inventory Processes

•Receiving •Quality Assurance •Storage (put away)

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Inventory Processes

•Receiving •Quality Assurance •Storage (put away) •Stock Rotation

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Inventory Processes

•Receiving •Quality Assurance •Storage (put away) •Stock Rotation •Order fulfillment

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Inventory Processes

•Receiving •Quality Assurance •Storage (put away) •Stock Rotation •Order fulfillment •Quality Control

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Inventory Processes

•Receiving •Quality Assurance •Storage (put away) •Stock Rotation •Order fulfillment •Quality Control •Delivery

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Inventory Processes

•Receiving

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Inventory Processes

•Receiving •First line of defense

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Inventory Processes

•Receiving •First line of defense •Unloading the goods

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Inventory Processes


• trained staff

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Inventory Processes


• trained staff •material handling equipment

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Inventory Processes



•The receiver should have a copy of the purchase order (PO)

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Inventory Processes



•The receiver should have a copy of the purchase order (PO) •Compare delivery documentation, such as the PO & Bill of Lading (BOL), to the actual goods received.

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Inventory Processes

•Receiving (concluded) •Inspect the goods for quantity and damage.

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Inventory Processes

•Receiving (concluded) •Inspect the goods for quantity and damage. •Document the quantity and quality on the vendor’s paperwork and maintain a copy.

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Inventory Processes


•If you sign a BOL without noting any deficiencies, especially quantity differences, the vendor will invoice for the full amount.

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Inventory Processes


•If you sign a BOL without noting any deficiencies, especially quantity differences, the vendor will invoice for the full amount.

•Ensure goods are entered in your inventory system before they are used.

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Inventory Processes

•Quality Assurance

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Inventory Processes


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Inventory Processes


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Inventory Processes

•Storage (put away)

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Inventory Processes

•Storage (put away) •Put the items in the best place for retrieving them

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Inventory Processes

•Storage (put away) •Put the items in the best place for retrieving them •Accurately record where the goods are stored

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Inventory Processes

•Storage (put away) •Put the items in the best place for retrieving them •Accurately record where the goods are stored •Each location should only hold one specific item, when possible

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Inventory Processes


•Stock Rotation

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Inventory Processes


•Stock Rotation •FIFO

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Inventory Processes


•Stock Rotation •FIFO •LIFO

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Inventory Processes


•Stock Rotation •FIFO •LIFO

•Order fulfillment

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Inventory Processes

•Quality Control

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Inventory Processes

•Quality Control •Check accuracy

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Inventory Processes

•Quality Control •Check accuracy

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Inventory Processes

•Quality Control •Check accuracy •Prepare for delivery

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Inventory Processes

•Delivery

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Inventory Processes

•Delivery •Proper handoffs

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Inventory Processes

•Delivery •Proper handoffs •Proof of delivery

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Inventory Counts

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Inventory Counts

•Full Inventory Counts

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Inventory Counts

•Full Inventory Counts •Cycle Counts

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Inventory Counts


•Randomized schedule

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Inventory Counts


•Randomized schedule •ABC Methodology (Pareto’s 80/20 Rule)

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Inventory Counts


•Randomized schedule •ABC Methodology (Pareto’s 80/20 Rule)

Class % of Items % of $ Value A 10% 70% B 20% 20% C 70% 10%

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Discipline

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Forecasting

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Forecasting

•Communication with Customer

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Forecasting

•Communication with Customer •Usage rates

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Forecasting

0 5

10 15 20 25 30 35 40 45 50

Day 1

Day 2

Day 3

Day 4

Day 5

Day 6

Day 7

Day 8

Day 9

Day 10

Day 11

Day 12

Day 13

Day 14

Day 15

Day 16

Day 17

Day 18

Day 19

Day 20

Quantity On Hand

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Forecasting

0 5

10 15 20 25 30 35 40 45 50

Day 1

Day 2

Day 3

Day 4

Day 5

Day 6

Day 7

Day 8

Day 9

Day 10

Day 11

Day 12

Day 13

Day 14

Day 15

Day 16

Day 17

Day 18

Day 19

Day 20

Quantity On Hand

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Forecasting

•Communication with Customer •Usage rates

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Forecasting

•Communication with Customer •Usage rates •Lead time

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Forecasting


•Order processing time

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Forecasting


•Order processing time •Supplier lead time

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Forecasting


•Order processing time •Supplier lead time •Transportation time

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Forecasting


•Order processing time •Supplier lead time •Transportation time •Receiving time

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Forecasting

•Communication with Customer •Usage rates •Lead time •Reorder point

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Forecasting

0 5

10 15 20 25 30 35 40 45 50

Day 1

Day 2

Day 3

Day 4

Day 5

Day 6

Day 7

Day 8

Day 9

Day 10

Day 11

Day 12

Day 13

Day 14

Day 15

Day 16

Day 17

Day 18

Day 19

Day 20

Quantity On Hand

Reorder Point

Reorder Point

Three Day Lead Time

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Forecasting

•Communication with Customer •Usage rates •Lead time •Reorder point

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Forecasting

•Communication with Customer •Usage rates •Lead time •Reorder point •Safety Stock

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Forecasting


Low safety stock levels •High confidence in on-time delivery

•Low demand variance

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Forecasting


Low safety stock levels High safety stock levels •High confidence in on-time delivery


•Low confidence in on-time delivery

•High demand variance

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0 5

10 15 20 25 30 35 40 45 50

Day 1

Day 2

Day 3

Day 4

Day 5

Day 6

Day 7

Day 8

Day 9

Day 10

Day 11

Day 12

Day 13

Day 14

Day 15

Day 16

Day 17

Day 18

Day 19

Day 20

Quantity On Hand

Safety Stock

Forecasting

Reorder Point

Reorder Point

Three Day Lead Time Safety Stock = 10 units

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Forecasting


Low safety stock levels High safety stock levels •High confidence in on-time delivery


•Low confidence in on-time delivery

•High demand variance

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Forecasting

•Communication with Customer •Usage rates •Lead time •Reorder point •Safety Stock •Minimum Quantities

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Forecasting

•Communication with Customer •Usage rates •Lead time •Reorder point •Safety Stock •Minimum Quantities •Maximum Quantities

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Forecasting

0 5

10 15 20 25 30 35 40 45 50

Day 1

Day 2

Day 3

Day 4

Day 5

Day 6

Day 7

Day 8

Day 9

Day 10

Day 11

Day 12

Day 13

Day 14

Day 15

Day 16

Day 17

Day 18

Day 19

Day 20

Quantity On Hand

Safety Stock Minimum

Maximum

Reorder Point

Reorder Point

Three Day Lead Time Safety Stock = 10 units

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Forecasting

•Communication with Customer •Usage rates •Lead time •Reorder point •Safety Stock •Minimum Quantities •Maximum Quantities

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Forecasting

•Communication with Customer •Usage rates •Lead time •Reorder point •Safety Stock •Minimum Quantities •Maximum Quantities •Seasonal Demand

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Forecasting

•Communication with Customer •Usage rates •Lead time •Reorder point •Safety Stock •Minimum Quantities •Maximum Quantities •Seasonal Demand •Critical Path Method (CPM)

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Just In Time

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Just In Time

• Inventory delivered right when it is needed.

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Just In Time

• Inventory delivered right when it is needed. • Good for manufacturing with a steady production with a very

steady usage rate.

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Just In Time


steady usage rate. • High quality usage with no mistakes.

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Just In Time


steady usage rate. • High quality usage with no mistakes. • Must establish a relationship with a select number of suppliers

to make sure goods are definitely delivered on time.

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Just In Time



to make sure goods are definitely delivered on time. • Cost of delivery will be higher due to more frequent deliveries

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Just In Time



to make sure goods are definitely delivered on time. • Cost of delivery will be higher due to more frequent deliveries • Less likely to be able to take advantage of bulk rates

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Just In Time



to make sure goods are definitely delivered on time. • Cost of delivery will be higher due to more frequent deliveries • Less likely to be able to take advantage of bulk rates • Not appropriate for organizations required to receive three or

more bids.

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Performance Measurement

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Number of days = 365 In Inventory inventory turnover ratio

Total Asset = sales Turnover total assets

Working Capital = net sales Turnover average working capital

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Current Ratio = current assets current liablilities

Acid Test = cash+net rcvbls+mkt scrts (or Quick Ratio) current liabilities

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Inventory = Cost of Goods Sold Turnover Ratio average inventory Receivables = new credit sales Turnover Ratio avg accounts receivable Number of Days = 365 of Receivables receivables turnover ratio

Fixed Asset = net sales Turnover Ratio net fixed assets

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Inventory = Cost of Goods Sold Turnover Ratio average inventory Receivables = new credit sales Turnover Ratio avg accounts receivable Number of Days = 365 of Receivables receivables turnover ratio

Fixed Asset = net sales Turnover Ratio net fixed assets

Debt-equity ratio = total liabilities fund balance Profit Margin = net income On Sales total assets Return on Assets = net income receivables turnover ratio

Equity ratio = fund balance total assets

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Inventory Accuracy

Fill Rate

Inventory Turnover Ratio

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Inventory Accuracy =

pre-count inventory – the sum of the variances* pre-count inventory

Note: the sum of the variances should be an absolute value

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Fill Rate =

number of units correctly filled number of units ordered

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Inventory Turnover Ratio (Turn Rate) =

Cost of Goods Sold average inventory

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( )


Inventory Turnover Ratio (Turn Rate) =

beg inv + purchases – returns – end inv beg inv + end inv

2

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Fill Rate vs. Turn Rate

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Customer Survey

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Inventory Obsolescence

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•Minimize losses

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•Minimize losses •Communicate with customers

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•Minimize losses •Communicate with customers •Rotate inventory

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•Minimize losses •Communicate with customers •Rotate inventory •Monitor expiration dates

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•Minimize losses •Communicate with customers •Rotate inventory •Monitor expiration dates •Monitor quantity levels

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•Surplus Property Program

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•Surplus Property Program •Previously owned items at great prices

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•Surplus Property Program •Previously owned items at great prices •Need their permission to dispose of property

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•Surplus Property Program •Previously owned items at great prices •Need their permission to dispose of property •They can help you get the salvage value of the item

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•Surplus Property Program •Previously owned items at great prices •Need their permission to dispose of property •They can help you get the salvage value of the item •GovDeals.com

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•Types of operations •Inventory systems •Inventory processes •Performance measurements •Obsolescence •Customers - The most important thing

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Questions?

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Audit

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Audit

•Inventory Observation

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Audit

•Inventory Observation •Management Assertions

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Audit


•Existence or Occurrence

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Audit


•Existence or Occurrence •Completeness

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Audit


•Existence or Occurrence •Completeness •Rights and Obligations

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Audit


•Existence or Occurrence •Completeness •Rights and Obligations •Valuation or Allocations

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Audit


•Existence or Occurrence •Completeness •Rights and Obligations •Valuation or Allocations •Presentation and Disclosure

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Audit


•Existence or Occurrence •Completeness

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Audit

•Existence or Occurrence

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Audit

•Existence or Occurrence Records Actual Goods

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Audit


•Completeness

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Audit


•Completeness Records Actual Goods

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Audit



•High dollar items

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Audit



•High dollar items •High volume items

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Questions?

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Resources

Aquilano, Nicholas J, & Chase, Richard B. Fundamentals of Operations Management. Homewood, IL, Irwin, 1991.

Baye, Michael R. Managerial Economics and Business Strategy. Chicago, Irwin, 1997. Brooks, Roger B., & Wilson, Larry W. Inventory Record Accuracy. New York, John

Wiley & Sons, Inc., 1995. Gianakis, Jerry & Matthews, Darin. Warehousing and Inventory Control. Herndon, VA:

NIGP, 2008. Gleim, Irvin N. & Flesher, Dale L., CMA Review. Gleim: Gainesville, FL 1994. Rayburn, L. Gayle. Principles of Cost Accounting, Using a Cost Management

Approach. Homewood, IL, Irwin, 1989. Robertson, Jack C. & Louwers, Timothy J. Auditing Ninth Edition. Boston: Irwin

McGraw-Hill, 1999. Wild, Tony. Best Practice in Inventory Management. New York, John Wiley & Sons,

Inc., 1997.

Inventory Management - Virginia

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