INVENTORY MANAGEMENT

We offer Stock Management services to our Client and these inventory management services covers: Inventory Valuation, Inventory Cost Accounting, Inventory Planning, JIT Implementation, Warehouse Operations Optimization, MRO Inventory Planning, Inventory Re-order, Inventory Lifecycle planning, Physical Inventory Count, Inventory Audits, Inventory Forecast, Inventory Assessments, Material Optimization(Daily, Weekly  & Monthly, Two Bucket System Implementation

We help you optimize and manage all the components of your inventory operations, including cycle stock, safety stock, pipeline and pre-build inventory to drive more efficiency across the value chain.

Our team helps you to optimize and manage every facet of your inventory operations, determining safety stock levels, and minimum re-order quantities, re-order levels.

We work with you to have the right inventory at the right time and place. Our team support the management of inventory to free up cash tied in inventory

Stock Management which is now referred to as Inventory Management is the process of monitoring the warehouse of a company so as to ensure that, it is at a satisfactory level. It involves overseeing different goods and items in the warehouse of a business, from the time they are moved to the store to when they are issued out to different sections of the business, so when the quality available starts reducing drastically, and when a particular goods want to get out of hand. Inventory management helps businesses to manage their inventory in an orderly manner.

Stock management is a significant part of every retail business and this is why enough attention must be accorded to it in business.  Having a good inventory management system in an entity will help in the reduction of the operation manual and as well bring about cost reduction and eradicate time-consuming activities.

Tips on Effective Inventory Management Procedures and Control

It is necessary to understand the procedures of managing stock efficiently, as this is the focus of many businesses.

         Store Arrangement and Layout

In order to move around the store with ease while monitoring the inventory; the store must be arranged properly. The layout must be adequate for easy access by the warehouse staff. For instance, if a particular department in an organization needs office files from the store, the location must be easily detected.

         Location and accessibility

The warehouse location within the company must be easily accessible to everyone. If an organization has branches in different locations, the warehouse must be near the branches. Location is very important when it comes to inventory management.

         Products/items Labeling

One of the most important ways of managing inventories and items in a store is to label them appropriately. Labelling the stock items will make their recognition easy when they are needed.

         Attention on Date of Expiration

Managing the stock items also entails paying close attention to the expiry date of the items. Note that, issuing out expired items to customers or to departments within the organization will pass a bad impression. Therefore, any item that is about to expire must be issued out as fast as possible; the price can be reduced to serve as a special offer.

         Getting rid of Unwanted stock

Any product that is not wanted must be get rid of as soon as possible. This will eradicate unnecessary space in the store. Promotion sales can be run for unwanted stock in order to sell them fast; thereby creating space for new items.

         Inventory Optimizing and forecasting

This deals with identifying stock that is in high demand from the store and products that have low demand. Having this idea will give the impetus to maintain the maximum order level and minimum order level of products in the store. The store managers must be able to predict items based on their demand.

         Stock observation as at the time of delivery

Anytime a new product or items are supplied to the warehouse; they must observe very well in order to discover if there is any fault or issues with the item. Here, unneeded        items can be easily detected and rejected instantly

         Track record keeping

Recording products/items as they move in and out of the warehouse is paramount. This must be done frequently so as to know when to place an order for the supply of a       particular product and when to also issue them out to departments or for sale.

         Assigning Responsibility for Inventory Management

The management of an organization must endeavour to assign inventory management responsibilities to a particular employee within the organization. The staff’s main responsibilities must be to oversee the management of inventory in the organization.

Stock Management is vital in any business because it eases the management

of stock items in the warehouse

Methods of Stock Control

Stock control made it easy for businesses to meet customers’ demands without wasting time and also ensuring that the cost of holding stock is at its minimal.  However, there are many stock control methods, but few of them will be highlighted here.

         First-In-First-Out (FIFO)

         Economic Order Quantity (EOQ)

         Just-In-Time (JIT)

         Vendor-Managed Inventory

 

First-In-First-Out (FIFO)

This is a logical flow of concept for businesses and it deals with issuing out items based on their days of existence in the warehouse. That is, goods purchased in the warehouse will be sold first before selling the new goods. It also means that the earliest goods purchased are issued out first and removed from the inventory account before issuing out the latest goods purchased. Furthermore, this method of stock control results in older historical costs being matched against current revenues and recorded in the cost of goods sold. More so, Generally Accepted Accounting Principles and International Financial Reporting Standards allow the FIFO method of stock control.

 

Economic Order Quantity (EOQ)

This method of stock control is important in Inventory Management which deals with ordering, storing, and use of a company’s inventory. EOQ ensures that the right amount of inventory is ordered per batch so that there won’t be excess inventory in the warehouse.  Calculation of EOQ will make it easy to make decisions in relation to the amount of product to order in a particular period of time.  Some of the benefits of calculating EOQ in controlling stock are: –

         It helps in minimizing inventory cost

         It helps in minimizing stockouts

         It brings about improvement in overall efficiency etc.

 

Economic order quantity is made up of three variables, which are holding costs, Annual Demand and Order Cost.

 

Just-in-Time (JIT)

This is a Japanese management philosophy that has been in use since the early 1970s in many Japanese manufacturing firms. It is developed in order to meet consumer demands with minimal delays.

This inventory system aligns raw materials orders from suppliers directly with the schedules of production. It tends to enhance efficiency and reduce waste because goods are received when needed, therefore reducing inventory costs.

 Vendor-Managed Inventory

This is a supply chain initiative whereby suppliers were allowed to oversee inventories of agreed-upon stock-keeping units at customer locations. That is, the inventory system is managed by the supplier in the customer location. Here, instead of employees managing the warehouse inventory, the supplier of the product will oversee the inbound and outbound of the goods to the warehouse. The burden of managing stock items will be pushed to the supplier instead of the company staff.

Stock Count Procedures and Process

Stock count is the act of counting the stock of items in the warehouse. To count the stock properly, appropriate procedures must be adhered to. The procedures are as follows: –

• First and foremost, the warehouse activities must be frozen.
• Issuing out warehouse layout maps, equipment to employees and tags for inventory
• The inventory count teams will be instructed on how to go about the counting.
• Inventory will be counted as assigned to each employee; then inventory tags will be
• The inventory tags will be returned to the stock count team lead at the completion of the stock count.
• The data gotten from the inventory count will be entered into the inventory system by the inventory counter and a comparison will be made between the physical stock counted and the theoretical quantity.
• If there is any difference between the physical count and the recorded value; the warehouse employee must be able to explain why.
• If it happens that, the warehouse staff can’t justify the differences; he will be ordered to recount the particular item.
• The next thing is for the Stock count staff to report any adjustment to the Team lead
• At this stage, Audits will be carried out on the inventory data.
• At the completion of the audit on the inventory data; the warehouse manager will be informed to continue normal operations.

 Importance of Stock Management

The importance of Stock Management in a business cannot be overemphasized; as both small-scale and large-scale businesses pay more attention to it.

Some of the importance of Stock management are: –

• Well-arranged Warehouse

A well-arranged warehouse will boost employee morale to function properly when working. There will be efficient plans for stock placement in the warehouse. This will also bring about cost-savings in business.

• Profit Maximization

When inventory is properly managed; goods that are profitable will be easy to identify and the goods will be stock in a sufficient manner rather than stocking goods that are not selling well in the market. Stock that is not well-demanded will be ignored.

• Increase in Customer Satisfaction

In small businesses, where customers come into their store to purchase goods and expect swift attendance; having good inventory management will make it easy for the store attendant to locate where a particular product is and attend to the customer as fast as possible.

• Labour Cost Reduction

When proper stock management is put in place, there won’t be a need to employ many labour force in running the store and this will allow the business to reduce the cost related to inventory.

• Cash Flow

Putting good inventory management in place will make it easier for a business owner to trace the inflow and outflow of cash incurred on their stock. Having good knowledge of their cash expense will allow the need for re-investment.

• Order Level Fulfillment

Inventory management brings about the proper fulfillment of orders as it is needed. That is,           there won’t be overstocking or understocking of goods in the warehouse. The warehouse manager will be able to discover when there is a shortage or excess stock items in the warehouse.

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Stock Valuation

Stock valuation which is now referred to as “Inventory Valuation” is a process of computing the total value of business inventory at a particular time. Stock is value based on the amount incurred in purchasing the inventory and making it available for sale in the market.

More so, inventory can be valued in many ways but the most common methods are:-

• Weighted Average Cost
• First-In-First-Out (FIFO)
• Last-In-Last-Out (LIFO)

 

Weighted Average Cost

Here, the weighted average will be used in determining the amount attributed to the Cost of Goods Sold and inventory. The weighted average cost is basically used by businesses that don’t have inventory variation.

 

Stock valuation using Weighted Average Cost

For instance, Photocopy machines were purchased at different prices and times.

• The first set of machines, which are Three in number was bought at 70,000 each
• The second set of machines, which are two in number was bought at 80,000 each.

Therefore, we have Five photocopy machines at the cost of #370,000 (  #210,000 + #160,000).

To calculate the Weighted Average Cost, #370,000 will be divided by the 5 numbers of photocopy machines and the cost of each photocopy machine will be valued at #74,000.

Assuming 2 Photocopy Machines were sold, the balance of the Cost of Goods sold will be 2 x 74,000 =#148,000.

However, the accounting balance of the Inventory account will be 3 photocopy machines x #74,000 = #222,000

Now, let’s see the cost of goods sold using the other two methods of stock valuation.

First-In-First-Out (FIFO)

Here, stock items are sold/disposed of/used based on how they are purchased or manufactured. That is, products that have stayed long in the warehouse are issued out first before issuing out those ones that are still new in the store. This is the most common method of stock valuation

Stock valuation using FIFO

Therefore, using the above example used in calculating WAC above, where;

• Photocopy machines were purchased at different prices and times.
• The first set of machines, which are Three in number was bought at 70,000 each
• A second set of machines, which are Two in number, was bought at 80,000 each.

Also, we have Five photocopy machines at the cost of #370,000 (#210,000 + #160,000).

Here, the costing will be based on the price of the first set of machines; assuming Two photocopy machines were sold. That is, 2 x #70,0000 = #140,000 and the Accounting balance for the remaining Three photocopy machines in the store will be calculated thus;

(1 x 70,000) + (2 x 80000) = 230,000

Last-In-Last-Out

This is a method of inventory valuation which assumes that the newly purchased or manufactured items are issue out first before issuing out the old purchased or manufactured items in the store.

Stock valuation using LIFO

Using the above illustration;

Also, we have Five photocopy machines at the cost of #370,000 (#210,000 + #160,000).

Here, the costing will be based on the price of the second set of machines; assuming Two photocopy machines were sold. That is, 2 x #80,0000 = #160,000 and the Accounting balance for the remaining Three photocopy machines in the store will be calculated thus;

3 x 70,000 = 210,000

Stock Optimization

This deals with planning and forecasting the demands on stock items so as to enhance the allocation of resources to them. Stock optimization ensures that there is appropriate control over the stock supply as demand arises. It assists in maintaining business liquidity and reduces harbouring archaic inventory in the long run.

 Why Stock Optimization

• Stock optimization also called Inventory Optimization lessens the expense incurred in managing, storing, and handling businesses’ inventory in the warehouse.
• It brings about a continuous stream of cash for organizations, thereby leading to the utmost potential for financial turnover.
• It’s a safety net to guide against erratic climate change.
• It brings about customer satisfaction and this is the lifeblood of any business. Because, when customers get what they need from the store when needed; they will be happy to come back.
• Stock optimization enhances competitive advantage because it lessens the cost of storing goods and reduces stock movements on site.

The techniques involve in Stock optimization are: –

         Using Demand Forecasting

         Determining Safety Stock Inventory

         Formulating reorder point and implementing it

         Carrying out Inventory Audits

         Distributing Inventory across the Store

         Application of Inventory Management Software

 

According to IAS 2, inventories include assets held for sale in the ordinary course of business, assets in the production process for sale in the ordinary course of business, and materials and supplies that are used in production.

 

Inventory Management Techniques

In order to ensure proper management of inventory in businesses; several techniques can be applied. Some of the techniques are highlighted below: –

• Just-in-time Method: – This technique has been explained early in this article. This is an inventory management technique that encourages receiving the order of stock when needed. That is, the stocks arrive just at the moment they are needed.
• Economic Order Quantity: – This inventory management technique focuses on ordering new stock when the old stock has gotten to the re-order level. This technique helps to save the ordering cost and carrying costs that are incurred when placing an order.
• Fast, Slow, and Non-moving (FSN) Method: – FSN Analysis is similar to ABC Analysis, however, it classifies inventory into three categories, fast-moving inventory, slow-moving inventory, and non-moving inventory. This implies that there are inventories that are not ordered frequently, there is some order once in a while and some inventories are not ordered at all. It assists in the determination of how to properly arranged stocks for easy access based on their demand.
• VED Analysis: – This is an inventory technique that is commonly used in controlling spare parts of inventory. It classifies inventory into Vital, Essential, and Desirable. It classifies material based on its criticality to the business.
• ABC Analysis: – Just like VED Analysis, it classifies inventory based on its level of importance to the business. A stands for A-list items, B stands for B-list items and C stands for C-list items. A-items have tight control and precise records, B-items have a less-tight control and good records while C-items possess lesser records and simple controls.
• Perpetual Inventory System: – This is an inventory management technique that perpetually keeps the records of inventory balance. It automatically estimates electronic records rather than physical inventory.

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Inventory Management Process

The inventory management process involves different tasks like order management, warehousing, packaging, and shipment of inventory out of the warehouse. After the order has been placed, the order stock will be packaged perfectly, then the location where the stock will be delivered will be identified and the stock will be sent to the warehouse. This is an inventory management process in a nutshell. The inventory management process ensures that every step that is needed to be taken to move stocks from the location of the seller to the buyer’s location is put in place.

The main idea behind the inventory management process in a business is to close a deal

Finally, the relationship that exists between stock and accounting cannot be far-fetch. The stock in a warehouse must be accounted for and proper records must be kept. However, accounting for inventory can be found under IAS 2 (International Accounting Standard). IAS 2 is an international financial reporting standard that is produced and disseminated by the International Accounting Standards Board (IASB).

In conclusion, if your business does not have accurate inventory records and stock management procedures, you must conduct a complete stock count on a monthly or yearly basis and you can as well employ the service of a professional Stock management and Stock Audit firm. Reach us on https://mocaccountants.com/contact/to Learn more about Stock Management services.