Inventory Management Best Practices and Valuation Methods

Operational Categories

• MP: Raw materials, supplies, and PPF.
• MOD: Report card time, target of Tº, and booking assistance.
• CIF: Bases of distribution for production orders.

Inventory Definitions

Inventory is the physical count of articles and devalued stocks listed in the cellar at a certain date.

Types of Inventory

• Unique Inventory: Takes place once a year, usually at the end of an accounting period (e.g., December 31st), to perform a physical count of all stocks.
• Relative Inventory: Takes place during the course of the year, representing groups of different goods. To enforce this, stock cards must be kept permanently updated to allow for a comparison between accounting information and physical assets at any time.

Prevention and Risk Management

Effective inventory management helps mitigate:

1. Excess merchandise
2. Improper stock levels
3. Theft
4. Shrinkage and penalties
5. Production process errors

Investment in Inventory

Key factors influencing investment include:

• a) Transformation time
• b) Inventory costs
• c) Replacement time
• d) Inventory turnover

Advantages of Maintaining Stock Levels

1. Prevents production stoppages due to material failure.
2. Avoids loss of fixed capital due to excess stock.
3. Allows for reasonable stock levels.

The Purchasing Process

• a. Need to Purchase: The production department must issue purchase requests based on the requirements of the production process.
• b. Quotation Process: Handled by the purchasing department, which reviews the file of possible suppliers, issues requests for quotations, analyzes options, selects the best provider, and issues a purchase order.
• c. Reception, Storage, and Consumption: The warehouse department is responsible for checking materials against the purchase order and supplier invoices. A reception note is issued, and materials are dispatched to storage.

Methods for Valuing Stocks

• Basic Methods: FIFO, LIFO, and PMP (Weighted Average Cost).
• Current Methods: Last purchase price, replacement cost, NIFO, etc.