BUS606: Operations and Supply Chain Management

There are two basic record-keeping methods to track inventory. The first is taking perpetual inventory. A perpetual inventory is simply a running balance of what is on hand. Perpetual inventory is best done by keeping records for each product that is in storage, as shown in Table 10.5.

Table 10.2 Reorder Point of Canned Peaches. The table displays the first half of the full table header. The full table is made up of two halves. Each half has two tables in it, 4 total displayed. This half of the table header shows the item and reorder point.

Table 10.3 Purchase Unit Size and Par Stock of Canned Peaches. The second (right) half of the table header that displays the size of the unit being re-ordered, and the par stock.

Table 10.4 Recording Dates of the Inventory, How Much of That Item the Business Received(in), Sold(out), and Total Balance.  The second part of the first (left) table half. Displayed below the first part of the table header, this part features dates of the inventory recorded along with how many of that item the business received(in), sold(out), and total balance.

Table 10.5 Recording In, Out, and Balance of the Unit Size of the Item Being Purchased. The second part to the second (right) half of the full table featured, this part features blank space intended to be used for recording in, out, and balance of the unit size of the item being purchased.

When more of the product is received, the number of cans or items is recorded and added to the inventory on hand; when some of the product is requisitioned, the number going out is recorded and the balance is reduced. In addition, the perpetual inventory form can indicate when the product should be reordered (the reorder point) and how much of the product should ideally be on hand at a given time (par stock). In large operations, this record-keeping is likely all computerized. In small operations, a perpetual inventory is usually only kept for expensive items as the time (and cost) of keeping up the records can be substantial. This system is often based on an ABC inventory analysis where "A" items are the most expensive, perhaps top 20%, "B" items in the middle 50%, and the least expensive, perhaps 30%, "C" items. "A" items are prioritized and may be carefully tracked and physically counted on a weekly or even daily basis, whereas "B" and "C" items may only be counted on a monthly basis and may not be tracked with a perpetual inventory.

The second inventory record-keeping system is taking a physical inventory. A physical inventory requires that all items in storage be counted periodically. To be an effective control, physical inventory should be taken at least monthly. The inventory records are kept in a spreadsheet or in another system reserved for that purpose. The inventory sheet (Table 10.6) can list the items alphabetically or in the order they will appear on the shelves in the storage areas.

Month: March

Table 10.6 Physical Inventory Form.  The table displays a product and its unit, count, unit price, and total price. four items are listed, then a total of all the products. called a physical inventory form.

In addition to the quantity of items, the inventory usually has room for the unit cost and total value of each item in storage. The total values of the items are added together to give the total dollar value of the inventory. This is also known as extending the inventory. The total value of the inventory is known as the closing inventory for the day the inventory was taken. This amount will also be used as the opening inventory to compare with the next physical inventory. If the inventory is taken on the same day of each month, the figures can be used to accurately determine the monthly food cost. The physical inventory is used to verify the accuracy of the perpetual inventory. For example, if 15 whole beef tenderloins are counted during a physical inventory, but the perpetual inventory suggests that there should be 20 tenderloins on hand, then a control problem exists and you need to find the reason for the variance.