Production Control

Purpose of implementing an inventory management system



Positioning of Inventory Management

It goes without saying that inventory management is an important part of doing business, and inventory management systems are introduced to improve the efficiency of inventory management operations and to make effective use of inventory data.

On top of that, an integrated business system (ERP) centered on an inventory management system is formed by systematizing the arrival of goods and materials that are about to become inventory, the collection of manufacturing results on the daily production line, and the shipping of goods to customers. IT devices such as barcode readers, handy terminals, POP terminals, and iPads are used to simplify data entry.

Inventory management is at the core of the business flow and is closely linked to all sales, purchasing, and production operations, so if systematized well, it can make a significant contribution to improving the accuracy and efficiency of internal business data.

The relationship between the main functions of the inventory management system and cost control

There are two flows in the business flow, quantity and value, and the inventory management system manages the quantity flow. Specifically.

  • Current Inventory List
  • Goods received/issued history management (stock cards)
  • Goods received/issued entry

These are the three main functions.

In the case of the sales business, the management of the quantity of goods purchased and the management of the cost (unit price) are sometimes required as a set, and usually either the moving average method is used to update the cost in real time, or the lot management is used to manage the cost by the first-in, first-out method (automatic debit-off from the first lot entered into the warehouse).

However, when inventory control is related to cost control, the problem is how to take into account not only the purchase price but also incidental costs such as shipping costs and customs clearance costs (purchasing agents). If the amount is small, it may be treated as a SG&A expense, but for imported products, the proportion of incidental expenses becomes high, and the company faces a difficult problem of how to allocate the items when they become inventory control objects in the system.

In the case of the manufacturing industry, although the cost of purchased materials can be controlled in the same way, it is not easy to control the cost of work-in-progress and products that are put into the manufacturing process. Even if material costs can be calculated in real time using moving averages, processing costs (labor and expenses) are fixed at the end of the month, so we have no choice but to use standard processing costs in order to reflect these costs in real time during the month. Then, the difference from the actual processing cost at the end of the month is allocated to cost of sales and inventory at the end of the month. The cost story is inevitably long, so I'll leave it for the next time.

Inventory Management System for Manufacturing Industry

In the sales industry, products are purchased and sold with a margin, while in the manufacturing industry, materials are purchased and put into the manufacturing process, which is then made into a product through a work in progress. When the receipt and payment of three item types (material, work in process, and product) are performed from the performance input function of the inventory management system, it is necessary to sufficiently define the requirements in advance to introduce an inventory management system in the manufacturing industry, such as whether the receipt and delivery of goods (material, work in process, and product) are manually input, whether the receipt and delivery of goods (production performance) are automatically increased when production performance is improved, whether the Bill Of Material (BOM) is necessary for this purpose, and to what level the BOM should be set.

When a manufacturing company introduces an inventory management system for the first time, it would be less burdensome for the factory floor to input only materials and products into the system, and to reflect work-in-progress in the system from the inventory quantity at the end of the month, and to develop the system in stages to manage the inventory of work-in-progress in the process.