Inventory Control - Cycle Counts and Inventory Audits.

Summary

Inventory control is crucial for managing raw materials, finished goods, and intermediate products. It ensures assets are properly maintained, secure, and accounted for. Effective inventory control requires mechanisms to match physical stock with book stock and provides visibility throughout the supply chain. The process involves inventory audits, cycle counts, and reconciling discrepancies. Cycle counts can be done daily, quarterly, or yearly depending on the transaction volume and item value. A mandatory audit at the end of the financial year ensures inventory accuracy, allowing companies to reconcile physical stock with system stock before starting the new year.

Takeaways

• 😀 Inventory is considered an asset on the company's books and needs to be managed carefully to avoid loss, theft, or pilferage.
• 😀 Inventory control is crucial due to the variety of stock-keeping units (SKUs), multiple locations, and involvement of third-party logistics providers.
• 😀 Both physical stock and book stock must always align through effective inventory control mechanisms.
• 😀 Inventory moves through the supply chain and must be monitored, including during transit, to ensure proper control.
• 😀 Inventory audits and cycle counts are key methods for managing inventory, with the aim of reconciling physical stock and book stock.
• 😀 A cycle count is a process of periodically or perpetually counting inventory items in physical locations based on factors like inventory size and transaction volume.
• 😀 Daily cycle counts are carried out for high-volume or fast-moving SKUs, where a percentage of inventory is counted daily, covering all items by the month's end.
• 😀 Quarterly and half-yearly cycle counts are typically conducted for finished goods and spare parts, often after a sales period.
• 😀 Wall-to-wall cycle counts involve a comprehensive count at the end of the financial year, halting all transactions during the count period.
• 😀 During a wall-to-wall count, all system transactions are frozen, and inventory discrepancies are flagged, requiring resolution before closing the books.

Q & A

What is inventory control and why is it important?

Inventory control is the process of managing raw materials, finished goods, and intermediate in-process inventory to ensure proper maintenance, storage, and security. It is important to prevent issues such as pilferage, loss, or theft, and ensures that inventory is available when needed without excess or shortage.

How does inventory control differ between physical inventory and book inventory?

Physical inventory refers to the actual stock items physically present, while book inventory refers to the records and system stock maintained in the company's accounting or inventory system. The goal is to ensure that physical stock matches the book stock at all times through proper tracking and audits.

What factors make inventory control more complex?

Several factors contribute to the complexity of inventory control: the large number of stock-keeping units (SKUs), inventory spread across multiple locations, inventory managed by third-party logistics providers, and the movement of inventory through various stages in the supply chain.

What is the role of inventory audits in maintaining inventory control?

Inventory audits are essential to verify that the physical stock matches the book stock. They involve reviewing transactions, checking stock quantities, and identifying discrepancies that need to be reconciled. This helps maintain accuracy and prevent loss or overstocking.

What is the difference between daily and periodic cycle counts?

Daily cycle counts involve counting a subset of SKUs on a daily basis to ensure accuracy, typically used for high-volume, fast-moving inventory. Periodic cycle counts, such as quarterly or annual counts, involve checking inventory at scheduled intervals and are more commonly used for items with lower transaction frequency.

How is a wall-to-wall cycle count conducted?

A wall-to-wall cycle count is a comprehensive audit where all inventory items across all locations are physically counted. This is typically done at the end of a financial period to reconcile the inventory with the books, ensuring no discrepancies before closing the accounts.

Why is it important to freeze system transactions during a cycle count?

Freezing system transactions during a cycle count is crucial to ensure no new transactions alter the inventory data while the physical count is being conducted. This prevents discrepancies between the physical count and the system record.

What is the significance of having inventory control mechanisms in place?

Inventory control mechanisms are essential for tracking and managing stock across locations, ensuring that inventory is secure, and preventing issues such as stockouts or excess stock. These mechanisms help align physical inventory with book records and support smooth operations throughout the supply chain.

What is the role of inventory system reconciliation?

Inventory system reconciliation involves comparing the physical inventory count with the system stock and addressing any discrepancies found. This process ensures that the recorded inventory matches the actual stock, helping maintain accurate financial records and avoid potential losses.

How does the movement of inventory through the supply chain affect inventory control?

The movement of inventory through the supply chain introduces many points where inventory can be miscounted, damaged, or misplaced. By maintaining inventory control across the entire supply chain and through various stages, businesses can ensure visibility and prevent issues during transit, reducing the risk of discrepancies and losses.