Inventory shrinkage and obsolence

Shrinkage and obsolescence includes any stock material that is purchased but not sold, used to provide a service, or is part of an assembly or finished good. This includes material that is lost, stolen, broken, scrap, or becomes obsolete in our warehouse. Some products are more susceptible to shrinkage and obsolescence than other items. We need to determine factors for these two important components of the carrying cost.

To calculate a shrinkage factor for a specific item, divide the total amount of adjustments due to shrinkage (material lost, stolen, broken, or considered scrap) recorded in the past 12 months by the total stock receipts for the product during the same time period. Why don't we use the average inventory value in this calculation? Because all inventory adjustments are already reflected in the average inventory value. We want to determine how much of the total quantity of the inventory that was received could not be sold, used in production, or used to service a customer. Many companies calculate a shrinkage factor for an entire product line, rather than for individual items. This allows a shrinkage factor to be applied to products that have not yet been inventoried for a full 12 months.

To get an accurate obsolescence factor, we usually have to use a longer time period. For example, if you normally consider inventory obsolete after it has been in your warehouse for 12 months, you might want to divide the amount of write-off adjustments made this year by the total amount of stock receipts for the item last year. Why? Because any material written off due to obsolescence this year was probably received last year. Again, it might be more meaningful if you calculate an obsolescence factor for an entire product line rather than an individual product.If you don't liquidate obsolete inventory on an ongoing basis, you may also want to vary the time periods you consider in this analysis. For example, one of our customers had a large obsolescence write-off last year that covered material that had been received anywhere from two to five years ago. To calculate their write-off factor, we divided the amount of adjustments due to obsolescence over the past two years by the total amount of stock receipts recorded in that two- to five-year period.

Economies of scale

Managers may also allow an accumulation of inventory to achieve economies of scale, either in production
or transportation. For example, set-up costs in a given stage of production can drive a manufacturer to produce in large lots. If demand does not occur in similarly large lots, supply demand imbalances and inventories are created. That is, a "clump" of supply is added to the inventory which is only slowly depleted by a more-or-less constant demand, followed by the arrival of another "clump" of supply, etc.. These "waves" of inventory, or cycle stocks, can be a major contributor to the total inventory of a supply chain.
Transportation economies of scale can also cause cycle stocks.
Because the demand process is uncertain, the demand on the inventory during the review period is also uncertain. If demand is weaker than expected, we can end the period with excess inventory; if demand runs unexpectedly high, we may end the period with a signi¯cant number of back-orders.
Note that periodic review introduces cycle stocks, since we must order, on average, enough product to satisfy average demand in a period.
Because of the demand uncertainty, we may want to start the week with more than this average amount of inventory. This excess over the average is called safety stock, since it serves as a hedge against uncertain variations in demand. The presence of a delay (lead time) in the supply process has a similar effect. To see why, suppose we continuously monitor the inventory and suddenly notice that a surge of orders has just come in. We begin increasing the supply to make up for the loss, but the new supplies take some time to arrive. Since the supply cannot exactly track demand, the inventory drops (or perhaps back-orders rise). Alternatively, if suddenly demand drops, we may stop ordering. However, past orders in the pipeline will still arrive, causing the inventory to surge.

What is inventory

At a very basic level, inventories are merely the by product of a universal accounting law" of material flow:
inventory = cumulative supply - cumulative demand.

In other words, if we draw a "black box" around a piece of our supply chain and measure the total amount of product that flows into the box (the supply) and then subtract the total amount that we observe leaving the box (the demand), the result (assuming no product is destroyed along the way) is the inventory in the box.
What does a negative unit of inventory look like?
Well, a lot like a back-order. If consumers of our output are willing to order without receiving product, then we can allow demand to exceed supply and inventory can become negative, in which case, it represents the total quantity on back-order. Think of a positive inventory as a pile of goods waiting for orders and a negative inventory as a pile of orders waiting for goods.

Supplu chain

The term supply chain refers to the complex sequence of activities, information and material flows involved
in producing and distributing a firm's outputs. Supply chains consume vast amounts of capital - in the form of plant, equipment and inventories - and are responsible for most of a firm's cost-of-goods and operating expenses. Supply chains create significant value and ultimately determine a firm's ability to satisfy the demands of its customers. As a result, effective supply chain management is a major strategic challenge for most firms.
But formulating effective strategy requires a good understanding of what drives cost and service in a
supply chain.
We will introduce an inventory model that will enable you to quantifying the often subtle impact of both operational and structural changes in a supply chain.

Dead and slow-moving inventory

by Jon Schreibfeder
Dead Inventory
These items have had no sales or transfers during the previous 12 months. As we said before, there are two reasons to maintain stock of these products:
* They are critical repair parts
* They are new stock items that a customer has committed to buy, or a salesman has committed to sell

If an item does not meet one of these criteria, you should probably discontinue it and dispose of your current stock.
Slow-Moving Inventory
Slow-moving items are similar to dead stock items, but they have experienced some (but not much) customer demand during the past 12 months. These items may also be candidates for being discontinued. Carefully review each of these items and ask yourself, or your sales department, these questions:

* Do we expect customer demand for this product to continue or increase during the next 12 months?
* Do our customers expect us to always have the item on the shelf and available for immediate delivery?
* Is there another source (an alternate vendor, company branch, or even a competitor) for this item that will allow us to meet our customers' expectations without maintaining warehouse inventory?
* Is the product very inexpensive, and therefore does not require a significant investment in inventory?

You may receive the response, "Go through all of these items? You must be kidding! There are just too many of them!"

If someone says this, ask them if they were to go to Las Vegas and win $1,000 in quarters from a slot machine, would they try to collect all 4,000 coins from the floor? Many companies agonize over the purchase of a $1,000 computer, but will not spend the time necessary to analyze dead stock and slow-moving inventory. This is strange, illogical thinking. The same asset (i.e. available cash) that is used to purchase new goods is literally tied up in dust-covered stuff in your warehouse. If you stock more items than you can keep track of, you're stocking too many products... or you need more help in inventory management!
Budget for Dead Stock and Slow-Moving Inventory
It's tempting to continue maintaining all of your dead stock and slow-moving items in stock. There is a "warm and fuzzy" feeling associated with knowing you have, in stock, anything any of your customers could possibly want. But can you afford this feeling? Remember that maintaining inventory that doesn't sell is a cost of doing business. We need to set up a budget for this expense.

The first step in calculating this budget is to calculate the average value of all of the dead stock and slow-moving inventory you plan to continue to maintain in each of your company's warehouses.

Consider the value of dead and slow-moving inventory to be equal to the current available quantity of each item times its average cost. If you don't have the average cost for an item, you may substitute the product's replacement cost.

Is this a conservative measurement? Yes. After all, dead stock and slow-moving items are sold on occasion. So the available quantity of at least some of these items will decrease during the year. You may even sell an entire vendor package! If you want to calculate the actual average value of the inventory of each of these items, fine. But most distributors only have the time and resources to perform this analysis based on the current inventory value.

Let's consider an item that you feel is a "critical repair part" and should always be on the shelf, available for immediate delivery. The cost of the product is $15.00. At first glance, $15.00 does not seem to be a lot of money to maintain an item in inventory, especially an item that has been designated as a "critical repair part." But if you consider the hundreds or thousands of slow-moving or dead stock items stocked by many distributors, as the late Senator Everett Dirksen once said, "a million here, a million there, pretty soon you're talking about real money."

Most distributors should limit the total amount of money they have tied up in non-moving inventory (i.e. dead stock) to no more than 10-15% of their total inventory investment. And, slow-moving inventory usually should not exceed an additional 15% to 20% of total inventory. If your investment in dead stock and slow-moving items exceeds the budget amount, you have two choices:

* Go back and discontinue more items.
* Reduce your target inventory turns so that the value of dead stock and slow-moving inventory you plan to maintain equals 35%, or more, of your target inventory investment. But, make sure everyone involved in the decision of which products to stock is aware of the negative effect this action will have on corporate profits.

Inventory management- if inventory will need to be buried

by Jon Schreibfeder
Liquidating unwanted stock using the Internet (or any other method) is not always successful.

Can't everything be sold at some price? Unfortunately, no. Last week, a distributor gave me an example of material that cannot be sold, at any reasonable price. He has an assortment of repair parts for obsolete equipment. This equipment is not in service anywhere! No one could use any of these items except maybe as a rather ugly door stop. Because the parts are made of a combination of glass, plastic, and steel, they cannot even be sold as scrap. The only practical thing he can do with this stuff is to throw it out in order to free up the warehouse space for other items. That is, bury it! His company will be out what they paid for this inventory as well as the expense incurred in buying, receiving, and maintaining the material in stock.

Please avoid having to throw out inventory. Whenever you buy a new product, consider its "burial risk."
Always consider a new item's burial risk factor when setting customer prices. Fortunately, most products whose remnant stock will need to be thrown out tend to be less competitive and price-sensitive. Why? Because they are sold to a limited number of customers and have few uses. There isn't much of a market for them.

You are much better off planning for the inevitable burial of inventory that cannot be sold than letting it take you by surprise. If competition does not allow you to include a burial risk factor in your pricing:

* Consider whether or not you need to really stock the product. After all, you are taking a significant chance on absorbing a loss.
* If you must stock the product, be sure that other profitable sales will compensate you for your probable losses.

Inventory turns -2

by George Matyjewicz
Turns refer to the number of times your inventory is replaced per year OR per month. The turns can be calculated for the whole inventory or part of the inventory such as a department or product grouping and gives you a picture of the business compared to the last month, quarter, season or year, and how you compare to others in your industry. The higher the number of turns, the better you are doing and the more productivity you are getting from your inventory investment, Return On Investment (ROI). If two companies are the same in every way but one is turning over its inventories more often, the one with better inventory management is the one that is going to be able to grow faster. Inventory management actually is a bottleneck for growth if it is not efficient enough, tying up a lot of working capital that could be better used elsewhere.

There is a fine line between a high number of turns and running out of product because your inventory is too close to what you are selling AND having too much inventory compared to your sales- When you get your inventory to the correct levels then you have achieved Just-in-Time Inventory. There is a critical mass point where the amount of inventory on hand will earn the best return. For example, if you had $1 million in inventory, and you only had sales of $100,000 in a month, you would have too much inventory and not make the turns. On the other hand, if you had $10,000 in inventory and $100,000 in sales, you would be buying too often and losing out on inventory turns. The ideal point is to turn inventory 5-6 times, and it is possible to turn it 10-12 times as many companies do. There are many factors which influence inventory turns, including how quickly you can replenish.

Your goal is to keep your inventory investment at target levels with as wide a selection as possible.
Financial advisors Motley Fool believes inventory is a liability masquerading as an asset, especially with retailers. Inventory represents the merchandise the company has available for sale. For most retailers, this is finished goods sitting in warehouses or on store shelves.

The reason they consider this a liability is because of inventory risk. Essentially, inventory risk is the risk that the value of the inventory will decline before it's sold. The problem that many retailers face is that their goods are perishable, either literally in the sense of food spoiling, or theoretically in the sense that items could go out of fashion.

How big is this risk? It depends on the type of retailer. For retailers that sell fashionable items, this risk is significant. If they cannot sell products when they are "hot," it will be hard if not impossible to sell them at full price in the future. The result is lower prices or "markdowns" on the inventory to entice customers to buy the merchandise. Because of the lower prices, the company will make less money, thus profits fall.

Furthermore, when it comes time to buy merchandise for the next season, the retailer finds itself a bit short of cash. In fact, the retailer could decide to buy fewer items next time to hedge against inventory risk. The point here is that high levels of inventory are often a leading indicator of problems for a retailer.

Many industries and companies use GMROI (Gross Margin Return on Investment) which is a merchandise planning and decision making tool that assists buyers in identifying and evaluating whether an adequate gross margin is being earned by the products purchased, compared to the investment in inventory required to generate those gross margin dollars. This is very common in the fashion industry, where merchandise is replaced every season.

For every dollar of inventory investment GMROI will help you calculate your return. The industry may average $2.00 return for every inventory dollar, however, some retailers, however are getting $4, $5 or more.

GMROI reveals where actual dollar profits (versus paper profits) are attained in the merchandise plan. It focuses the buyers' attention on return-on-investment rather than sales as a basis for merchandising decisions.

To calculate GMROI, follow these steps:

1. Calculate your gross margin or realized gross margin as a percentage.
2. Calculate the value of your average inventory at cost.
3. Divide your total sales by your average inventory at cost. This will give you your ratio of sales to inventory investment.
4. Multiply the result of #3 by your gross margin percentage (#1) to get GMROI.

GMROI works for any size store, department or merchandise classification. It will work for each category in each department, each class in each category, each color, each size in each class and so on.

Managing your GMROI results will enable your inventory to work for you and generate increased profits.

Inventory problems - avoiding

by Ted Hurlbut
For many small retailers, the largest asset on the balance sheet is inventory. But without careful planning, inventory can easily get out of whack, resulting in heavy markdowns due to overstocks and ultimately, serious cash flow problems.

Often the heavy inventory levels they represented, and resulting cash flow issues, were the result of mistakes made months earlier, when preseason planning was being done.
In fact, the planning that does take place is frequently confined to financial planning or cash flow projections.
Here are a few tips:
1. Plan sales. In order to effectively manage your inventory, you need to know what you expect to sell. For larger retailers that are stocking many SKU’s, sophisticated sales forecasting software may make sense. For many small retailers, however, developing a simple spreadsheet from your POS sales history, by month by key category, is most cost effective. Start with last years sales histories, and make adjustments for unusual events, such as weather, out of stocks, one-time promotions, etc. Then factor in the appropriate sales increase or decrease percentage, based on a reading of the sales potential for the category for the upcoming season. Finally, for larger categories, it may make sense to break the sales plan down by sub-categories, styles or vendors.

2. Plan inventories. It makes little sense to bring in more inventory at any given time than you need to set your displays, support your planned sales until the next delivery, and provide a safety stock in the event of an unexpected sales spike or a late vendor delivery. Buying inventory too far in advance is one of the surest ways to find yourself over-stocked down the road. For many small retailers, the best way to plan inventories is to plan to have enough on hand at month end to support the next two or three months sales.

3. Plan inventory receipts. If you’ve planned sales by month, and ending inventories by month, it’s easy to calculate how much inventory to bring in each month. You need to bring in enough to cover that month’s sales plan and ending inventory, less the prior months ending inventory. In this way, a buyer can know in March, when preparing for the fall season, for example, how much inventory to plan on bringing in each month of the season.

4. Plan markdowns. Planning markdowns goes hand in hand with planning inventories. If you plan the date of the first seasonal markdown before the season even begins, you can plan the inventory you want to have on hand at that point in time, and thus your markdown percentage, as well as your markdown sales before your second markdown, as well as all subsequent markdowns.

5. Plan dynamically. Once you’ve completed your preseason planning, don’t put it in a drawer never to be seen again. Use that plan as a dynamic tool to track the progress of the season. As each week goes by, and sales trends begin to develop, adjust future sales plans accordingly, and adjust inventory plans for those updated sales plans. If sales are exceeding plan, you want to be sure you have the inventory to keep the momentum going. Conversely, if sales are coming up short of plan, the sooner you adjust your inventory plans, and thus your scheduled receipts, the less likely you are to end up with excess inventory that needs to be marked down at season’s end.

The root cause of many inventory problems faced by small retailers is the lack of adequate preseason sales and inventory planning. It may seem that there’s never enough time for such planning, as if it’s a luxury that just can’t be afforded, but in reality, it’s a critical necessity, a vital investment in the future health of any small retailer.

Inventory -more about

Inventory levels are only incompletely observed. This may be due to non-observation
of demand, spoilage, misplacement, or theft of inventory. The non-observation of demand may be caused,
e.g., by transaction errors or by discrepancies/delays in transmitting/processing sales data. We study a
periodic review inventory system where the demand is not observed and the unmet demand is backordered.
As a result, the inventory manager cannot tell the exact quantities of inventories or backorders. However, by
looking at the shelf, he knows whether the inventory is positive or non-positive. Only with this information,
the inventory manager must determine the order quantity in each period that would minimize the expected
total discounted cost over an in¯nite-horizon.

Inventory system

Information delays exist in an inventory system when it takes time to collect, process, validate, and transmit inventory/demand data. A general framework is developed in this paper to describe information flows in an inventory system with information delays. We characterize the sufficient statistics for making optimal decisions. When the ordering cost is linear, the optimality of a state-dependent base-stock policy is established even when information flows are allowed to cross over time. Additional insights into the problem are obtained via a comparison between regular models and the models with stochastic order lead times. Inventory can substitute for information and vice versa.

Inventory cycle

The inventory cycle, from order to delivery, involves the flow of both information and material. Information is initially generated from your sales forecast. As the inventory cycle advances, information is generated from the receipt of sales orders and the placement of purchase orders to your suppliers. Material flow is the movement of raw materials into your company that are processed into finished goods. The material flow cycle ends with the movement of finished goods to your end-user. If you are a manufacturer, your inventory consists of three basic types of inventories: raw materials, work in progress, and finished inventory. Each of these types represents the various stages of completion of your product as it works its way through the manufacturing and assembly processes. If you are a retailer or wholesaler, you deal only with finished goods inventory.

How to Convert Inventory into Cash effectively

Converting your inventory into cash is as critical a process for the health of your company's cash flow, as the process of converting Accounts Receivable into cash. The effective conversion of inventory into cash requires a methodical system that efficiently moves products from order to delivery. Without a well-defined inventory management system in place, inventory stock levels may become too low or too high, resulting in lost sales and increased costs. The longer an item(s) remains as inventory, the greater the chance for the item(s) to become either damaged or obsolete and this eventually results in an inventory write-down. Slow-moving inventory adds to a slower cash flow and consequently creates greater carrying costs that must finance the inventory. The degree of success, in converting inventory into cash, is directly related to the how well the inventory cycle is monitored and controlled.

Control your inventory

Inventory drivers are things that tend to make inventory go up or down. Understanding them is the beginning of gaining control over your inventory.
The more items you have, the more inventory you will need.
The more SKU's in a product, the harder it is to bring matched sets of parts together at the same time. Because there are multiple items, with multiple vendors, kept and routed through multiple places or paths, with more opportunity for delays, defects, etc, more inventory will be needed.
The more operations there are and the longer that they take, the more inventory you will tend to have. More operations mean a longer supply chain. It may also mean differing lot sizes per operation and more places for delays and defects to occur. Process simplification helps reduce inventory.
The more facilities that inventory passes in and out of, the further apart those are and the harder they are to reach and pass material in and out of, the more inventory you will tend to have.
The more times inventory passes from the control of one system or organization to another and the less efficient the transfer is, the more inventory you will tend to have.

Inventory Investment Requirements

First, understand market, customer needs and service expectations; your own company needs, expectations, process, abilities; supplier abilities and mindset; industry norms and mindset; world-class best practices. You might figure out how to procure better or manufacture better in a way that allows you to carry less inventory.
The result of this step is to establish what industry inventory standards might be and what is possible.
Measure current and historical company inventory levels and performance, not just overall statistics, but broken down into levels of responsibility, commodity, area, type (raw material, work-in-process, finished goods, consignment) and market. Do this to help isolate figures down to levels of accountability and to show inventory investment performance by market, process or even product line. You may find that your systems are unable to do that, meaning that it is past time to make changes to them, whether that be to replace them, modify them or put in separate inventory tracking and control systems (recommended as a last resort).The result of this step is to establish how your own company is doing and has been doing with inventory management.
Establish performance metrics - Inventory is usually measured in currency value, such as U.S. Dollars ($USD).
More turns (or "turnover") is usually good, provided that cost, service or quality aren't unacceptably affected. If they are, the answer is not simply to increase inventory, but to try to improve the underlying "drivers" influencing it instead, if possible and cost-effective. There are variations of the turnover (this term should not be confused with the European "turnover," which usually refers to total sales for a period) formula, mainly in addressing how to calculate average cost of goods sold or inventory.turns are calculated by comparing full sales value with average inventory cost or even equivalent sales value.It is becoming more common to measure inventory performance in days coverage instead of turnover. People seem to relate to it better.

Inventory and sales may also be commonly measured in more industry-friendly terms, such as tons (steel), bushels (corn), housing units (construction or real estate) or ounces (gold).

A further refinement is to stratify the inventory by "Quality," as asserted by Gary Gossard of IQR International. The idea of classifying inventory as active, slow-moving or obsolete has been around for a long time. Constantly track it, to highlight any change in inventory quality or condition, such as a new requisition for an item which is already in excess or obsolete.
Here are typical Inventory System Metrics, which should be broken down by organization/responsibility, area, type, commodity, market/product, and time phased, with targets and actual values:
• Inventory Turnover or Days Coverage
• Inventory value or other unit of measure, such as tons
• Inventory "Quality," including IQR and summaries of amounts of each type
• Customer service level, expressed how the CUSTOMER perceives it

Inventory management, demand and customer service

Inventory management is influenced by the nature of demand, including whether demand is derived or independent.
An independent demand is uncertain, meaning that extra units or safety stock must be carried to guard against stockouts. Managing this uncertainty is the key to reducing inventory levels and meeting customer expectations. Supply chain coordination can decrease the uncertainty of intermediate product demand, thereby reducing inventory costs.
The availability of inventory provides customer service. Products in inventory may be unfit for sale because of damage or an expired shelf life. Finally, a seller may not have the capability to accurately track inventory in their stores or distribution centers.
To avoid shortfalls or stockouts, firms carry extra inventory known as safety stock.
Also, if a firm holds too much inventory, it can lead to low inventory turnover and hide operational problems.

Physical Inventories

Count inventory, and have then made adjustments to your on-hand balances based on those counts without having the time to adequately investigate the variances. The final result likely being that half of the adjustments corrected previous inventory problems while the other half created new inventory problems on items that were correct prior to the inventory. Counting inventories on a regular basis throughout the year (cycle counting) combined with a process for continuous improvement in inventory accuracy will prove a far better method for achieving accurate inventories. My definition of cycle counting tends to differ slightly from the generally accepted one. Most people think of cycle counting as regularly scheduled (usually daily) counting of product where you randomly count items based upon some type of predefined parameters. For example, inventory is broken down by ABC classifications and frequencies assigned such as A items counted 10 times/year, B items 5 times/year, and son on. I prefer to define cycle counting as any count program using regularly scheduled counts where you count less than the entire facility's inventory during each count. This includes a system that I’ve found to be highly effective, that is a hybrid of a physical inventory and a cycle count, where you’re counting all inventory within a physical area like a physical inventory, however, you are not counting the entire facility at one time. The next day you simply start where you left off the day before. Regularly scheduled physical inventories can be an effective way of counting inventory in smaller operations provided you are using trained counters and have adequate time to investigate the discrepancies prior to making adjustments. If your inventory is so extensive that you cannot adequately investigate the count discrepancies, you must break it down into some sort of a cycle count program.

(c) Dave Piasecki

Inventory accuracy

Maintaining inventory accuracy must be an integral part of the attitude of the organization. Like quality, customer service, and plant safety, accuracy must be promoted throughout the organization as everyone's responsibility. This attitude must start at the top levels. Yeah I know all you managers and execs out there want an accurate inventory but are you doing your part through your decisions and business practices to promote it. Processes are often shortcut in the name of "Customer Service" (this also applies to processes for Quality, Inventory Management, and Production Plans) that reduce or eliminate the effectiveness of the plan, which in the long run will reduce your ability to service your customers. Remember that these plans are designed to meet the needs of the customer, don't compromise them.
Procedure Documentation is the part where you use the previously defined processes to document the procedures the employees will follow to maintain inventory integrity. The procedures documented here should not be limited to inventory issues.You will have to count it to determine the accuracy, as well as determining areas needing additional evaluation. Year-end physical inventories are tools used by accountants and do very little for inventory accuracy. You should count your inventory on a continuous basis (cycle counting) to maintain high levels of accuracy. This is one of the best ways of identifying problem areas on a timely basis and providing an environment conducive to continuous improvement.


(c) Dave Piasecki

Consignment Inventory

Consignment Inventory is inventory that is in the possession of the customer, but is still owned by the supplier.
The supplier places some of his inventory in his customer’s possession (in their store or warehouse) and allows them to sell or consume directly from his stock. The customer purchases the inventory only after he has resold or consumed it.
There is a potential side benefit to consignment inventory in that some shared information that results from the consignment process could be useful to the supplier in his inventory management. Unfortunately, this information is rarely integrated into their planning systems. Some of this may be due to laziness or negligence on the part of the supplier, but there are also valid reasons why this information is not utilized. The primary one being that it requires very different system logic to utilize customer inventory levels in your planning processes; if consignment inventory is only a small part of you business, it may not be cost-effective to add the complexity to your planning systems to utilize this limited information.
The nature of consignment inventory is that “change of ownership” is unrelated to the shipment/receipt processes. This is contrary to the basic design of most inventory/accounting system’s transactional processes. Because of this, most inventory system’s do not handle consignment inventory very well. This forces many businesses to manage consignment inventory with manual off-line processes (sending reports back and forth, maintaining data in spreadsheets, etc). Not only is this time consuming, but it also creates many opportunities for errors because the additional transactions necessary for consignment inventory can get rather complicated and are highly dependent on accurate information sharing. If this process is not monitored closely, you can end up in a situation where reconciling your consignment inventory becomes a nightmare.If consignment inventory is a significant part of your business you need to look for software that focuses on consignment inventory or look into modifying your current system to add this functionality.

Inventory evaluation

Inventory is one of the largest out-of-pocket expenditures for a company and can have the greatest after-the-fact impact on profit performance.The evaluation of an inventory is greatly aided by accurately defining the key categories that make up that inventory.Poor inventory accounting practices can destroy a company without management knowing what is happening.

Inventory control important aspects

One of the most important aspects of inventory control is to have the items in stock at the moment they are needed.To maintain an in-stock position of wanted items and to dispose of unwanted items, it is necessary to establish adequate controls over inventory on order and inventory in stock. There are several proven methods for inventory control:

• Visual control enables the manager to examine the inventory visually to determine if additional inventory is required. In very small businesses where this method is used, records may not be needed at all or only for slow moving or expensive items.
• Tickler control enables the manager to physically count a small portion of the inventory each day so that each segment of the inventory is counted every so many days on a regular basis.
• Click sheet control enables the manager to record the item as it is used on a sheet of paper. Such information is then used for reorder purposes.
• Stub control (used by retailers) enables the manager to retain a portion of the price ticket when the item is sold. The manager can then use the stub to record the item that was sold.