• Consolidate inventory in designated locations. When there is no computerized inventory tracking system, it is very easy to put away the same inventory items in multiple locations and lose track of where they are located, resulting in stockout conditions even though the inventory is still somewhere in the warehouse. A major control is to preassign inventory to specific locations and always store it there (with a designated overflow location when there is too much stock on hand).
• Pick from the source document. There is a risk that copying information from a customer order document to a picking document may result in data entry errors that will yield picks of either incorrect inventory items or quantities. To avoid this, structure the customer order document so that it can be used as a picking sheet, and use a copy of the order as the picking document.
• Receiver verifies received quantity for all internal transfers. There are many internal transfers of inventory, typically shifting goods from the warehouse to the production department and back again. There is a risk that inventory will be stolen or lost at any point during these transfers, so a standard control should require all receiving employees to count the inventory received and match it to the transfer document that states the quantity being transferred. Once accepted, the person who received the goods is now responsible for the on-hand quantity.
• Conduct daily reordering review. When there is no perpetual inventory system, the only way to ensure that sufficient quantities are on hand for expected production levels is to conduct a daily review of the inventory and place requisitions if inventory items have fallen below predetermined reorder points.
• Maintain file of open requisitions. If the warehouse is large enough, there may be a great many items on order at any one time, so the warehouse staff should maintain an open requisitions file to track what items have already been ordered and which require new requisitions. A good additional control is to tape a copy of any open requisitions to the locations of items that are currently on order, so that employees reviewing inventory levels can easily determine if a requisition has already been placed. (If this is done, a procedure must be in place to remove the requisition copies once inventory arrives from the supplier.)
• Issue prenumbered requisitions to the purchasing department. The warehouse should issue only prenumbered requisitions to the purchasing department. By doing so, the warehouse staff can maintain a log of requisition numbers used and thereby determine if any requisitions have been lost in transit to the purchasing department.
• Verify that purchase order matches requisition. Once the warehouse staff receives its copy of the purchase order, it should compare the purchase order to the initiating requisition to ensure that the correct items were ordered. Any incorrect purchase order information should be brought to the attention of the purchasing staff at once.
The preceding primary controls are required to ensure that the warehouse maintains a basic level of control over inventory. In addition, the next two supplemental controls are useful for reducing the level of theft from the warehouse, while the third and fourth controls make it easier to determine when inventory should be reordered, and the fifth reduces the chance that inventory will be inadvertently requisitioned multiple times.
1. Restrict warehouse access. Without access restrictions, the company warehouse is like a large store with no prices—just take all you want. This does not necessarily mean that employees are taking items from stock for personal use, but they may be removing items for production purposes, which leads to a cluttered production floor. Also, this leaves the purchasing staff with the almost impossible chore of trying to determine what is in stock and what needs to be bought for immediate manufacturing needs. Consequently, a mandatory control over inventory is to fence it in and closely restrict access to it.
2. Do not publicize warehouse locations. To prevent inventory theft, do not post warehouse and manufacturing facility locations on a company Web site.
3. Install a visual reordering system. The warehouse staff can produce requisitions for more inventory with greater accuracy and reliability when there is a visual reordering system in place. For example, a line can be painted partway down the side of a storage bin; once the on-hand inventory drops below the line, the warehouse staff knows it must issue a requisition for more inventory.
4. Regularly update visual reorder points. Even if a visual reorder system is in place, it is likely that reorder quantities and supplier lead times will change over time, which may lead to either stockout conditions or excessive on-hand balances. To avoid either situation, schedule periodic reviews of the visual reorder points and modify them as necessary.
5. Assign requisition responsibility to one person. If more than one person conducts the daily review of inventory reorder points, it is quite likely that several requisitions will be placed for the same inventory, resulting in excess quantities on hand. To avoid this, either assign responsibility for completing requisitions to one person or clearly assign responsibility for specific areas of the warehouse to different employees.
When customer-owned inventory is delivered, it requires special handling to ensure that it is not subsequently counted as part of the company-owned inventory and valued as such, which would artificially inflate company profits.
[tags]inventory storage, movement procudure[/tags]
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