Ensure that all Material Movement is Properly Recorded
By Jon and Matt Schreibfeder
This is the first in a series of 15 articles on the actions an organization must take to achieve effective inventory management. We start with the most important step, making sure all material movement is properly recorded. If the on-hand (i.e. what is physically in your warehouse, storeroom or branch) and available (what is available for sale or use) quantities of each item in your computer system are not accurate, you are forced to overstock to be sure you have enough of each product to meet your customers’ needs.
It is imperative that all material movement is properly recorded in your computer system. This includes receipts, disbursements, as well as all movement within your facility. Best practice is to document the proper way to process each type of inventory transaction including:
- Normal stock receipts – From previously issued purchase orders and transfers.
- Unexpected stock receipts – The stuff that just shows up on your receiving dock.
- Requisitions – A request for material to be consumed within your company.
- Emergency requisitions
- Sales:
Orders to be shipped
Orders to be delivered
Orders to be picked up
Cash sales
Direct shipments
Orders for non-stock products - Transfers to other warehouses or facilities
- Assembly orders
- Bin-to-bin transfers within your warehouse
- Returns of stock material
- Returns of non-stock material
- Returns of damaged material
- Returns to your supplier
- Adjustments to on-hand quantities – Who is allowed to approve adjustments? Under what circumstances?
- Scrapping and writing-off stock
You probably can add to this list. Remember that inventory is valuable. You should have a documented procedure for every type of transaction processed by your company. New employees should be trained using this documentation. Employees should be encouraged to consult the documentation if they have a question on how to deal with an unusual situation.
Your inventory policies and procedures guide should be a “living” document. If someone has a better idea to handle a particular situation, or a new procedure is introduced, the change should be documented and submitted to management for approval. If it is determined to be a good idea, the guide should be updated to reflect the change.
Finally, there will be situations where an employee, for whatever reason, cannot enter a material disbursement in your computer system. Perhaps there is a power outage. Or the computer system is down. In these situations, employees must manually record any material disbursements on a form. This form just requires some basic information:
Date Quantity Item # Reason Taken By
June 10 1 A-1234 Sample for Acme Construction Jeff Miller
June 10 12 M-2356 Emergency for Jensen Controls Karen Becker
When the computer is available again, a clerical employee can enter transactions for each entry on the form.
Inventory accuracy is necessary for both delivering great customer service and maintaining a “best practice” replenishment system. If you don’t know how much of a product is in your warehouse and available for sale or use, there is no way your organization can achieve effective inventory management.
Next month we will explore how to determine what products should be stocked in each of your facilities. In the meantime, please let us know if you have any questions.