The practice of taking an annual inventory count at the end of the fiscal year often requires an enormous effort for large warehouse complexes. The costs to a company are relatively high, and the physical counting process in the warehouse is labor intensive. In many factories, an annual inventory count would result in lost output because of the effort required. Therefore, several variations to the conventional annual inventory count are allowed by law under certain circumstances.
The FLYKON-INVENTORY application supports the following methods:
- Annual inventory count (also called periodic inventory)
- Continuous inventory
- Continuous inventory during stock placement
- Continuous inventory based on zero stock check
- Cycle counting
- Inventory sampling
The periodic inventory method is an accounting method in which you determine the amount of inventory at the end of each accounting period or in specified periods. Furthermore, a periodic inventory system requires a physical count for each period. Then quantify the amount on the financials.
The periodic inventory system only updates the ending inventory balance in the general ledger when you conduct a physical inventory count. Since physical inventory counts are time-consuming, few companies do them more than once a quarter or year. In the meantime, the inventory account in the accounting system continues to show the cost of the inventory that was recorded as of the last physical inventory count.
Under the periodic inventory system, all purchases made between physical inventory counts are recorded in a purchases account. When a physical inventory count is done, the balance in the purchases account is then shifted into the inventory account, which in turn is adjusted to match the cost of the ending inventory.
Perpetual/Continuous inventory is a method of accounting for inventory that records the sale or purchase of inventory immediately through the use of computerized point-of-sale systems and enterprise asset management software. Perpetual inventory provides a highly detailed view of changes in inventory with immediate reporting of the amount of inventory in stock, and accurately reflects the level of goods on hand.
Inventory method for each storage type, for example, high rack storage has continuous inventory during stock placement while bulk storage has an annual inventory.When you cancel a transfer order, inventory activities associated with such transfers (such as continuous inventory during stock placement or zero stock checks) are reversed. The system reads the storage bin to determine if an inventory has already been taken during a previous stock placement to the storage bin.If inventory based on stock placement is set for the storage type in which these bins are located, the bins will not be inventoried during the year. Inventory numbers for transfer orders are used when inventory is taken at stock placement or for zero stock checks upon complete stock removal.
In a Zero Stock Check you use the fact that during checks of the bin stocks, according to the storage bin data in the
Warehouse Management System (WMS), a storage bin should be empty after a stock removal. During the physical removal of stock from storage, you check whether the storage bin data matches the actual stock situation.
You can implement the zero stock check in different ways:
The system automatically activates the zero stock check as soon as you create a transfer order (TO) for a storage bin that should be empty after the stock removal.
You request the zero stock check manually if you realize that a storage bin is empty after stock removal, but that no zero stock check has been planned for this storage bin.
You use the zero stock check as a procedure for continuous inventory.
When you confirm the transfer order, the system updates data about physical inventory for the storage bin and the quant. After the zero stock check, you have performed the inventory for this storage bin in the current fiscal year.
Cycle counting is a popular inventory counting solution that allows businesses to count a number of items in a number of areas within the warehouse without having to count the entire inventory. Cycle counting is a sampling technique where count of a certain number of items infers the count for the whole warehouse. This sampling method is used by pollsters every day where they measure the opinion of a small number of the people and infer that is the opinion of the population.
When a cycle count is performed, there are two inferences that are made. The primary inference is that the accuracy of the items in the cycle count can be used to determine the accuracy of the items in the warehouse as a whole. The other inference is that if an error is found in the cycle count then that error could be expected to occur for other items in the warehouse.
Inventory Sampling reduces the time and cost of a physical inventory considerably by counting only the stock of individual materials and carrying out an extrapolation to arrive at an estimated count result for all units of stock managed in the system (stock management units).
The more materials a company has, the more costly it is to carry out a physical inventory by counting all stocks. The principle of extrapolation during sample taking is also used in quality inspection in the system: only one particular sample is inspected. The result is then applied to the entire quantity.
However, such conclusions (from several counts of all stock management units) are only allowed when certain criteria are fulfilled:
The scope of the stock management units involved in the physical inventory must be large enough.
The selection of stock management units to be counted must be “representative”.
Mathematical/statistical processes are used to perform the inventory sampling:
A sample to be counted is randomly selected from the stock management units subject to physical inventory. The size of the sample depends on the probable degree of confidence that is valid for the projection of individual count results on all the stock management units involved.
On the basis of the posted count results, the system carries out an extrapolation for all the stock management units included in the physical inventory.
The inventory sampling is considered successful, if there is only a small deviation between the extrapolated value and the book value and a high probability that the extrapolation result contains only a minor error.
In the case of a successful inventory sampling, it is assumed that the estimated variances from the book inventory are so small that they can be safely ignored. As in the case of a “standard” physical inventory, only the stock of the elements actually counted is adjusted. The stock of the remaining stock management units remains unchanged.