Chapter 12: Inventory management
As part of the clothing industry, maintaining stock is an essential part of Spindl's business. After all, the clothes they manufacture make use of a large chunk of the company’s cash flow. However, because of the sheer scope of the operation, manually keeping track of things has made them prone to a plethora of problems. Some of the issues faced by Max’s department, Procurements and Inventory, are inventory shortage, quality control issues (with incoming materials and outgoing stock), managing returns, etc.
To tackle these issues, Max decides there are two concepts that need to be followed:
- Good housekeeping. Visual control is necessary; items should be labeled, stacked, and sectioned properly.
- Accurate data entries. Every transaction should be recorded. Any data that comes from goods processes should be made note of within the system. This will also aid in generating true reports.
The Inventory part, Lyn explains, will build upon the two concepts. Let’s see how.
Why use ERP for inventory management?
For most businesses that deal in physical goods, inventory management is a key business function.
Using an ERP makes it much easier to gain complete control of your inventory. You can:
- Maintain details of your products and warehouses.
- Track receipt, transfer, and delivery of the products.
- Optimize stock levels by providing real-time information via reports.
- Provide the valuation of each product.
This helps you to avoid inventory shortage, manage quality inspection, pricing, create and maintain variations of items, virtual warehouses, serialization, batching, etc. and ensure your business runs smoothly. The inventory module is tightly integrated with Purchase, Manufacturing, and Accounting modules.
Breaking down the workflow
Here are some key components that are a part of the Inventory Management workflow.
The following three transactions serve as the core elements of a functional inventory management system:
A Purchase Receipt is made when you accept Items (e.g., materials) from your Suppliers against a Purchase Order. This marks the Items as ‘received’ and a part of your current stock.
A Stock Entry is a simple document that lets you record Item movement from a Warehouse to a Warehouse, and between Warehouses. This is useful in tracking Material Issues, Sales and Purchase Returns, Manufacturing, etc.
When Item(s) are shipped out to Customers, a Delivery Note is used to mark this transaction.
Some Items have Quality Inspection as a criterion before they can be transacted with. When enabled, this prompts users of the system to ensure QA takes place before the Item(s) are transacted with. This works for incoming and outgoing products. Details such as the sample size, inspection criteria, remarks, etc. can be entered into the system during Quality Inspection.
A Warehouse is any storage location that’s used by your company. It’s not limited to physical space; virtual Warehouses can be created for organizational purposes.
Serialization allows the user to assign each individual stock item a unique Serial Number. The Serial Number helps maintain and track the location, warranty, expiry, and other information about the Item.
A Batch is a consignment of Items produced at one time. Batching allows you to group multiple units of an Item and assign them a unique identifying tag. When used with Serialization, this enables you to track warranty and returns, trace individual Items in case they’re being recalled by the Supplier, manage expiry dates, etc.
When implementing an ERP, part of the data upload is Stock Reconciliation. This updates your business’ stock for any given Item on a given date for a given Warehouse to the given quantity. The first time you enter this data into the system, you log in your ‘Opening Stock’. Stock Reconciliation can also be used once your
Stock Ledger and Stock Ledger Report
The Stock Ledger is a record of every transaction made using stock Items. Every Stock Ledger Entry has the Item Code, Serial Number, Batch Number, Warehouse, and all other details about the Item.
The Stock Ledger’s information lends itself to an incredibly comprehensive report of the inflow and outflow of material across the Warehouses of your company, called the Stock Ledger Report. It sounds simple enough but is perhaps one of the most useful and knowledge-laden resources available to you. The Stock Ledger’s oceanic information will grant you deep insights into your business.
As is the case with most reports in an ERP, you have the option to filter the report to be as birds-eye-view or as granular as you need it to be.
To be surrounded by data and starved of insights is futile - this especially rings true when it comes to business growth. Maintaining inventory accurately is a necessity, yes, but being able to analyze your processes (and the patterns that lie within) can provide you with great insights into your business. With that in mind, let’s take a look at the key Stock Reports you can generally access using an ERP - and why they might be helpful.
Stock Projected Quantity Report
This report breaks down your Stock data by listing Item wise - Warehouse wise Stock level of an Item. It shows you:
- Actual Quantity: Quantity available in the warehouses; the data is pulled from Stock Entries.
- Planned Quantity: Quantity for which a Work Order has been raised, but is yet to be manufactured; the data is pulled from Work Orders yet to be fulfilled.
- Requested Quantity: Quantity requested for purchase, but not ordered; the data is pulled from Material Requests.
- Ordered Quantity: Quantity ordered, but not received; the data is pulled from Material Requests and Purchase Orders linked to Stock Entries and Work Orders.
- Reserved Quantity: Quantity ordered for sale, but not delivered; the data is pulled from confirmed-but-undelivered Sales Orders.
- Reserved for Production: Quantity transferred for manufacture.
- Reserved for Subcontract: Quantity set for subcontracting; the data is pulled from Purchase Orders.
All of the above parameters are used to calculate the Projected Quantity.
Projected Quantity = Actual Quantity + Ordered Quantity + Indented Quantity + Planned Quantity - Reserved Quantity - Reserved for Production - Reserved for Subcontract
This is incredibly useful for planning and monitoring your Inventory, and maintaining safety stock levels (in case of an unexpected surge in demand).
Stock Balance Report
The Stock Balance Report is useful when you need to check and analyze the Stock Balance of an Item on any given date. It pulls all its data from Stock Ledger Entries. Along with an Item’s stock levels, you also get its valuation in this Report, along with the In and Out Quantities for said Item!
Akin to using a virtual time-machine, you can go back and study your stock balance as and when changes take place.
Batch-Wise Balance History
This Report comes in handy for filtered Balance History of a specific Batch of a specific Item. The data, again, is pulled from Stock Ledger Entries.
Setting up a workflow
While completing data migration for implementation, Lyn and Max made sure to upload Spindl's inventory data. This meant they’d established the Opening Stock. Max’s department is now ready to use a new workflow to manage stock and inventory.
- Upon creation, Items are serialized and batched; Quality Inspection is set as a mandatory criterion. This gives the employees a clear record of where the Items have come from when to conduct quality inspections, track warranty, and returns, etc.
- Warehouses are created in the system. These Warehouses correspond to the physical organizational system for easier navigation.
- Purchase Receipts are made when materials are accepted from Suppliers. These are all made against Purchase Orders.
- In the Purchase Receipt, all the materials are checked for quality. If there are any rejections, the Rejected Quantity is updated and stored in the Rejected Warehouse.
- If certain Items require Quality Inspection records (as marked while creating the Item), the inspections are conducted. Only Items that have passed the inspection can be submitted and recorded as stock within the system.
- The Serial Number and Batch details are entered. This takes place after the Items have been approved.
- Once the Purchase Receipt is submitted, a Stock Ledger Entry is automatically created for each accepted Item. This marks the Item as stored in the respective warehouse.
- For every rejection, a separate Stock Ledger Entry is made.
- The Purchase Order is updated to reflect the status of the order.
- For every Item movement that takes place, a Stock Entry is created.
- Delivery Notes are made when shipments leave the Warehouse. It contains the list of Items that are sent in the shipment and updates the inventory. A copy of the Delivery Note is sent with the transporter.