Inventory Management
Inventory
Management keeps track of goods and materials held available in stock. It allows the management of sales, purchases
and payments. Inventory management
software, such as Fishbowl, helps create invoices, purchase orders, receiving
lists, payment receipts, and can print bar-code labels. An inventory management software system
configured to a warehouse, retail, or product line, will help create revenue
for the company and control operating costs.
Here are five common inventory phrases:
- SKU – Stock-Keeping Unit (pronounced Skew) is a
unique combination of all the components that are assembled into the
purchasable item. Therefore, any
change in the packaging or product is a new SKU. This level of detailed specification assists in managing
inventory.
- BOM - Bill of Materials (pronounced bomb) is the
term used to describe the raw materials, parts, sub-components, and
components needed to manufacture a finished product. A BOM can define:
·
Products
as they are designed, which is an engineering BOM.
·
As
they are ordered, which is a sales BOM.
·
As
they are built, which is a manufacturing BOM.
·
As
they are maintained, which is a service BOM.
- JIT – Just-in-Time – JIT is the practice of
keeping very low levels of inventory and using sophisticated ordering and
manufacturing methods to get the product into inventory just in time
to be shipped. The goal is to
maximize inventory turnover, and minimize the money tied up in inventory.
- FIFO – First in First out (pronounced Fife-oh) -
FIFO is pushing the old items up front to make room for new items in the
back that are of the same kind.
Items that are perishable and have a sell by date such as milk and
eggs, or if you have a product that has periodic software upgrades, would
use the FIFO method. You would
want to use FIFO to reduce old stock in order to make way for the new
stock.
- LIFO – Last in First out (Pronounced Life-oh) –
LIFO is pushing the old items back to make room for new items in the front
that are of the same kind. The
last items stocked will be the first items sold. This would be a typical stocking method for items that have
no “sell-by” date associated with them, or at least one that is in the
distant future, such as canned goods or a product that has no upgrade
scheduled for awhile, etc.
COGS, LIFO and FIFO
as pertained to accounting is discussed in Lesson 8.
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