Perhaps the single most important control over the amount and location of inventory on hand is the use of a perpetual inventory system. Under this ap­proach, inventory records are updated constantly with purchases arriving from suppliers, sales to customers, picked items being sent to the produc­tion area, and so on. In its simplest form, no computers are used, and in­ventory updates are maintained in a card catalog. The materials handling staff is not allowed to record transactions directly in the card file (in order to segregate the handling and recording functions), instead completing prenumbered move tickets that are then entered in the card file by a ware­house clerk. The controls in this section are geared toward information storage in a card file; the controls in the next section are designed for a more advanced perpetual system involving a computer database.

Exhibit 1 Obsolete Inventory Review Procedure

Controls for a Basic Perpetual Inventory Tracking System 115 Exhibit 2 Inventory Obsolescence Review Report Quantity Last-Year Planned Extended Description Item No. Location on Hand Usage Usage Cost Subwoofer case 0421 A-04-C 872 520 180 $9,053 Speaker case 1098 A-06-D 148 240 120 1,020 Subwoofer 3421 D-12-A 293 14 0 24,724 Circuit board 3600 B-01-A 500 5,090 1,580 2,500 Speaker, bass 4280 C-10-C 621 2,480 578 49,200 Speaker bracket 5391 C-10-C 14 0 0 92 Wall bracket 5080 B-03-B 400 0 120 2,800 Gold connection 6233 C-04-A 3,025 8,042 5,900 9,725 Tweeter 7552 C-05-B 725 6,740 2,040 5,630

The four counting and variance analysis controls at the bottom of the flowchart in Exhibit 3 would normally be considered supplemental con­trols for most other transaction flows. However, since the perpetual inven­tory card file will inevitably become more inaccurate over time, they are considered primary controls in this context. The controls noted in the flow­chart are described at greater length next, in sequence from the top of the flowchart to the bottom.

• Record inventory transactions on move tickets. When the warehouse staff moves inventory and records each move in the perpetual inven­tory card file, the opportunity exists for staff members to remove in­ventory from the warehouse and alter the card file to mask the theft. To avoid this, the materials handling staff can document moves on a stan­dard move ticket and give it to a warehouse clerk, who records the transaction in the card file. Since this approach requires a considerable amount of extra labor, an alternative is to assign responsibility for record accuracy for specific locations within the warehouse to the materials handlers and then allow them to maintain their portions of the card file.

Exhibit 3 Controls for a Basic Perpetual Inventory Tracking System

• Use prenumbered move tickets. If move tickets are used to document inventory transactions, consider prenumbering them and investigating all missing move tickets at the end of each shift. This will ensure that all transactions are entered in the card file.
• Assign blocks of move tickets to specific personnel. To obtain a tighter level of control over move tickets, record the range of move ticket numbers assigned to each warehouse person, so that responsibility for specific missing move tickets can be assigned to individual employees. This procedure should contribute to a reduction in the proportion of missing move tickets.
• Limit access to perpetual inventory card file. Even if warehouse em­ployees are not allowed to update inventory records, they still may be able to do so by gaining illicit access to the card file and making alter­ations after the fact, which may cover up their theft of inventory. Ac­cordingly, always restrict access to the card file.
• Conduct a complete physical count. Despite the best record keeping, perpetual records will become less accurate over time, due to the grad­ual accumulation of errors. To increase record accuracy, conduct a pe­riodic physical count and reconcile the results to the perpetual records.
• Conduct a periodic cycle count. An excellent alternative to the full-blown physical inventory count just described is to implement an on­going program of cycle counts, where small sections of the storage area are counted each day. It is listed in that section, which addresses computerized perpetual tracking systems, because cycle counts are much easier to conduct in a computerized environment.
• Conduct a variance analysis. Whenever either a physical or a cycle count uncovers a variance between the actual and book quantity, it is mandatory that the variance be fully investigated and the underlying cause be corrected. Otherwise, the reason for the error will continue to cause errors in the future.
• Investigate negative-balance perpetual records. A record in the per­petual inventory card file contains a running balance of the current on-hand inventory quantity, usually in the far-right column. If this number ever reaches a negative balance, always investigate to determine what transaction or counting error caused the problem, and take steps to en­sure that it does not happen again.

[tags]basic perpetual, tracking system inventory[/tags]

Tags: basic perpetual, tracking system inventory