99WIL22e: Inventory Best Practices: Inventory …

1 99 WIL22e: Inventory Best Practices: Inventory Policies and Procedures, InventoryMeasurements, and Cost Accounting 2008 SmartPros Ltd. Selected materials in this course are provided under a license from John Wiley and Sons, rights reserved. Purchaser may print one (1) copy for his or her records. This course may not be modified ordistributed in any way without prior written 1 INTRODUCTIONS ection RequirementsThis course consists of the following: learning objectives, glossary of key terms, index, text and graphics toillustrate course subject matter, review questions and a final exam. To earn CPE credit, you are required toread all materials, answer the review questions and pass the Final Exam. Questions on the Final Exam will bebased on content found in all portions of the course link to the downloadable course index is to the left and bottom of the screen.

2 In addition, you candownload a printable file of the course passing the Final Exam, you will receive a Certificate of Completion that is accessible on the YourAccount page. You do not have to complete the course at one sitting. If you exit the course before youfinish, your current location will be remembered and when you return to the course, you can pickup fromwhere you left off. If you exit or logoff the Professional Education Center, this course will be saved. You canlaunch the course again from "Enrolled Courses" under Your Account. You have one year from the time youenroll in the course to complete NavigationTo navigate throughout the course, you can use the course menu located on the left side of the screen tojump from one unit or section to another. Please note that this course has restricted navigation and you willnot be allowed to proceed to a new unit until you have answered the review questions at the end of the OBJECTIVESC ourse Overview:This course provides an overview of best practices related to Inventory policies and procedures, inventorymeasurements, and cost accounting.

3 Emphasis is placed on identifying the most common Inventory -relatedactivities and then creating policies and procedures around those activities, with follow up staff training inthose procedures. The course continues by covering an array of Inventory -related metrics -- encompassinginventory accuracy, availability, turnover, storage cost, obsolescence, surplus, scrap and putaway. The finalelement addressed is this course is cost accounting as it relates to Inventory , in which topics such aspurchase price variance, work-in-process, costs of product ownership, target and activity-based costing, andcost trending are covered. Throughout the course, cost and installation time issues are evaluated in order togive the participant an indication of the relative ease or difficulty of implementing the various practices thatare covered.

4 In total, fifty-four (54) best practices are Objectives:After completing this course, the course participant should be able to: Identify the most common Inventory -related activities. Create a policies and procedures manual that addresses Inventory -related activities. Select, from among alternatives, the optimal way to educate and train staff in using a policies andprocedures manual. Calculate parts usage, scrap, storage density, returnable Inventory and obsolete Inventory percentages. Analyze bill of materials, putaway, picking, and overall Inventory record accuracy. Measure Inventory turnover, availability, cycle times, and lead times. Employ various techniques used to track Inventory . Compare and contrast Inventory costing methods. Revamp and enhance traditional cost accounting : Inventory Best Practices: Inventory Policies and Procedures, InventoryMeasurements, and Cost Accounting 2008 SmartPros Ltd.

5 Selected materials in this course are provided under a license from John Wiley and Sons, rights reserved. Purchaser may print one (1) copy for his or her records. This course may not be modified ordistributed in any way without prior written more information about John Wiley & Sons, Inc. and Wiley books and manuals, go OF KEY TERMSC onsigned Inventory - Inventory owned by a company, but located on the premises of its agents Inventory - A group of components needed to assemble a finished product that has been clusteredtogether for delivery to the shop Inventory - A manual or automated Inventory tracking system in which a new Inventory balanceis computed continuously whenever new transactions of materials - A listing of all parts and subassemblies required to produce one unit of a finishedproduct, including the required number of units of each part and controls - Procedures for ensuring that transaction processing is completed prior to thecommencement of cycle review system - Inventory reordering based on a visual inspection of on-hand turnover - The number of times per year that an entire Inventory or subset thereof is master file - A file containing all item-specific information about a component, such as its weight,cubic volume, and unit if Inventory - Parts for which the on-hand Inventory quantity exceeds forecasted - Faulty material that can not be Inventory - Parts not used in any current end costing - A costing technique based on a review of the existing market and estimate of a targetprice at which a certain set of product specifications would sell.

6 This, in turn, establishes a maximum costfigure to enable an acceptable - Any items being converted into finished goods, or released from the warehouse inanticipation of beginning the conversion shipment - A type of shipping technique whereby the retailer does not keep stock of the goods sold,but rather transfers customer orders and shipment details to wholesalers, who then ship the goods directlyto the - The process of moving received items to storage and recording the related : Inventory Best Practices: Inventory Policies and Procedures, InventoryMeasurements, and Cost Accounting 2008 SmartPros Ltd. Selected materials in this course are provided under a license from John Wiley and Sons, rights reserved. Purchaser may print one (1) copy for his or her records. This course may not be modified ordistributed in any way without prior written 2 Inventory BEST PRACTICES: Inventory POLICIES AND PROCEDURESS ection TO Inventory POLICIES AND PROCEDURES BEST PRACTICESThis unit contains a mix of best practices related to policies and procedures and example formats for 11 ofthe most commonly used Inventory procedures.

7 The four best practices shown in Exhibit form a cohesivecluster of activities -- first create a policies and procedures manual for Inventory -related activities, and thenuse several approaches to train the staff in its use. It is no accident that the cost of all the best practices islow, while the installation time is significant -- these are labor-intensive activities requiring : Summary of Inventory Policies and Procedures Best PracticesThe 11 sample procedures are designed to be templates for conversion into a company's own proceduresmanual, and address the most common Inventory -related activities:1. Drop ship Receive Track inbound consignment Kit Cycle count Perform physical Inventory Calculate period-end Calculate lower of cost or market Reorder supplies with a visual review Receive sales Review Inventory for of the procedures include sample reports, which can also be used as report formats for a company'sinternal Inventory : Inventory Best Practices: Inventory Policies and Procedures, InventoryMeasurements, and Cost Accounting 2008 SmartPros Ltd.

8 Selected materials in this course are provided under a license from John Wiley and Sons, rights reserved. Purchaser may print one (1) copy for his or her records. This course may not be modified ordistributed in any way without prior written A POLICIES AND PROCEDURES MANUALAn unorganized warehouse department is inefficient, suffers from a high transaction error rate, and does notcomplete its assigned tasks on time. One of the best ways to create a disciplined warehouse team is tocreate and maintain a policies and procedures manual should list the main policies under which the warehouse department operates, such as thoselisted in Exhibit These policies deal with key materials handling issues, and are usually limited to just afew pages. Anything longer probably indicates an excessive degree of control or some confusion in thedifference between a policy and a : Sample Policies PageA policy is one that sets a boundary for an activity ( , defining an obsolete Inventory item as one havingbeen withdrawn from production).

9 A procedure, however, defines the precise activities taking place withinthe boundaries of the policies created. A procedure is usually sufficient to use as a guideline for an employeewho needs to understand how a process works. When combined with the proper level of training, the policiesand procedures manual is an effective way not only to increase control over Inventory , but also to increasethe efficiency with which it is there are few excuses for not having such a manual, there are some pitfalls to consider whenconstructing it, as well as for maintaining and enforcing it. They are as follows: Not enough detail. A procedure that does not cover activity steps in a sufficient degree of detail is not ofmuch use to someone using it for the first time; it is important to list specific forms used, computer screens99 WIL22e: Inventory Best Practices: Inventory Policies and Procedures, InventoryMeasurements, and Cost Accounting 2008 SmartPros Ltd.

10 Selected materials in this course are provided under a license from John Wiley and Sons, rights reserved. Purchaser may print one (1) copy for his or her records. This course may not be modified ordistributed in any way without prior written , and fields on those screens in which information is entered, as well as the other positions eithersupplying information for the procedure or to which it sends information. It may also be helpful to include aflowchart, which is more understandable than text for some people. Not reinforced. A procedures manual does not do much good if it is immediately parked on a remoteshelf. Instead, one must make it an integral part of all training programs and include it in periodicdiscussions regarding the updating and improvement of key processes. Only through constant attention willthe manual be used to the fullest extent.