Material inventory storage procedure

Specific objectives; definition; storekeeping; types of stores; stores ledger; bin cards; material coding; stock taking, advantages and disadvantages

Specific objectives

This article is guided by the following 6 specific objectives. The learner/user of this article will be able to;

1. Define the term material inventory storage procedure
2. Safe store keeping of raw material inventory
3. Ensure storage of raw material inventory is cost effective
4. Manage stores under using different storge systems
5. Identify the advantages and disadvantages of each type of store
6. Carry out stock taking using different approaches

Definition

Material inventory storage procedure is an inventory management procedure of storage of raw materials or goods which involves several logistics starting from physical storage process and the recording of the transactions that rotate around the store such as receipt, storage and dispatching/issuance.

Storekeeping

Storekeeping has twofold meanings:

One, the physical storing activities that take place in the store and

Two, the activity of keeping store records.

One: Physical Storage Activities

Storekeeping entails the physical handling of the goods purchased. This activity involves one, receiving of the goods externally from the suppliers or internally from the production department or other departments in case they are not required. Two, it involves the actual or physical keeping of the goods in the store premises and thirdly storekeeping involves dispatching of the goods in the store to either the suppliers in case there are cases of damaged goods or goods with discrepancies or dispatching of goods to the respective departments in case they are in demand or alternatively transfer of goods from one department to another, other than the stores department. For good storekeeping therefore, it implies that the stores must have some good features to ensure those activities are performed in a more efficient and effective manner. Those features may include and not limited to;

1. Store locality; the location of the stores where the goods are kept should meet proximity characteristic of being near their point of demand. That is the physical location of these stores should be near the point of production to avoid transport and other related store inconveniences such as poor timing of delivery of goods.
2. Economic design; the physical design of the store premises should be an appropriate one designed to suit the specifications of the goods being stored therein. For instance, the store design should ensure full utilization of the space provided.
3. Easy material accessibility; the stores should be in a manner that the users of the raw materials can trace the materials or goods needed without wasting time.
4. User friendly Receipt/dispatch window; the stores should adopt a system of receiving goods in a convenient manner and also dispatching system should not be a complex one to avoid losses that can be through theft and collusions translating to financial losses.
5. External calamity proof; the store should be installed with protective gears against any external perils such as fire, theft and floods.
6. Record keeping compliant features; the store should be installed with software and hardware for easy and transparent recording of all activities taking place.

Types of stores

The good features needed for a store as aforementioned requires entrepreneurs or manufacturers to establish improved stores. This calls for the discussion on the types of stores commonly used by the producers. These are;

1. Centralized stores
2. Decentralized stores
3. Imprest stores 

Centralized Stores

As the name suggests, these are stores where by the goods are kept at one central point or location and from the same locality the goods are dispatched as demanded.

Advantages

1. Suitable for keeping small volumes of inventory or goods. So, for the small manufacturers or organizations, this type of stores are the most suitable ones for they are economical.
2. Less labor intensive. The store requires few workers for it is a small one and well confined in one place. Therefore, one person can manage several activities concurrently.
3. Simple storekeeping system required. The store is not a complicated one so it requires less paper work.
4. Easy to safeguard the inventory therein; since it is one building, the inventory or goods can efficiently be protected from danger.
5. No duplication of efforts; since the store is only one, no chances of keeping the same goods unknowingly as it would be in the case of many or decentralized stores
6. Easy to control inventory; monitoring of the movement of the goods is easy for every item of inventory is traceable. This is advantageous for no losses.

Disadvantages

1. Increased transport cost; since there is only one store serving several production Centre, distribution cost to branches which are far increases hence adversely affecting the profit margins.
2. Possibility of transport vehicle breakdowns; when the distance between the centralized store and the production Centre is far, chances of van breakdowns are high especially when the goods being transported are heavy, this increases cost of production.
3. Delay in time of delivery; centralized stores located far away have a challenge keeping time in goods or raw material delivery. This results to delayed production or supply of goods to the market hence lead to reduced sales volumes and market.

Decentralized Stores

Decentralized stores are storage facilities which are located in different locations especially near production centers. They may all be controlled from one point or each may run on its own. The layout of these stores is set in away such that for each production department there is a corresponding store purposely aimed at supplying goods or raw materials to that department. 

Advantages 

1. ) Suitable for keeping large volumes of inventory or goods. For large manufacturers or organizations, this type of stores are the most suitable ones for they are economical for they purchase goods in large quantities.
2. ) Capital intensive. Most decentralized stores are mechanized hence require less employees and this approach helps in cutting operating costs.
3. ) Economies of scale. Since such stores are kept by big firms, they are in a position of engaging qualified personnel which increase operations efficiency.
4. ) Reduced purchase cost. Since manufacturers with many stores all over need to purchase more goods, this is achieved at lower purchasing cost for they buy in large scale. So, they are given financial reliefs such as cash discounts.
5. ) Timely delivery of goods or raw materials; the nearness of the stores to the production site helps in quick delivery period hence being able to meet the customer’s demand which translates to increased sales volume and profitability.
6. ) Reduced transport cost. Since the goods are delivered to each store by the supplier, this cuts cost and the issues of vehicle breakdowns are rare as it is in the case of centralized stores.

Disadvantages

1. Costly to construct. These stores are expensive to establish because they require large capital outlay which implies a lot of cash outflow from the business.
2. Duplication of efforts; since the store are many, there are high chances of keeping the same category of goods unknowingly.
3. Not easy to control inventory; monitoring of the movement of the goods is not easy for not every item of inventory is traceable. This is disadvantageous for losses occur without knowing.

Imprest Stores

We learned about the concept of imprest system under the sub-topic of petty cash system. The imprest stores borrow its way of operations from this concept. That is, the layout of this store is such that there exists one central store with branches all over where there exists production centers or departments. Those stores are issued with specific quantity of goods or raw materials which is subject to reimbursement in the beginning of every particular period of time. In other words, when the goods in the store are used within the speculated period, the difference is added up from the central store such that a certain level is maintained all through. For instance, if a branch is issued with 1,500 in the beginning of the first week and at the time the week is ending may be units consumed are 1,200, then in the beginning of the proceeding week the store will be repumped with the units missing to restore the 1,500. That is on top of the 300 units remaining, additional 1,200 will be added. This is maintained all through the years. This is referred to as imprest system and stores which use this mechanism are referred to as imprest stores.

Advantages 

1. Easy to reconcile the inventory balances; with imprest system, the balance of the inventory is always known. Since it is predetermined, no way lesser units will be acceptable.
2. Lessen the main store manager’s workload; with this system, every branch store has somebody managing that. Who report to the main store man and this helps in improving productivity for all the store players.
3. Less cases of fraud and collisions. Since control is central, all activities are fully monitored and chances of looting goods are low. This saves the organization from financial losses.
4. Reduced risks of damages; since goods are located in different places, this reduces the chances of suffering losses for no way there can be a coincident whereby for example all stores suffer due to fire breaking or theft cases.
5. Increased transparency; each store in every branch has one responsible on how it operates and therefore powers and authority are not bestowed on one individual as it is in the case of centralized stores. This minimizes chances of collusions leading to financial losses.

Disadvantages

1. Not suitable for small manufacturers. Producers of small scale don’t need such a system. It can just be uneconomical for the goods they deal with are few.
2. Imprest stores are cumbersome to run for they require many technicalities.
3. Imprest stores are expensive for they require big capital outlay to get started.

Recordkeeping Activities

The second storekeeping activity is referred to as recordkeeping which simply means store of records.

Recordkeeping is the act of documenting all the activities that take place within and around the stores. It entails the recording of the store related or affiliated transactions in official notes or documents. This includes records for both accounts and costing purposes. Such official documents used are stores ledger and bin cards.

Stores Ledger

Stores ledger document assumes the financial ledger format and it discloses the quantities and monetary value of goods being delt with. In detail, the ledger has a window to record the units of goods or raw materials received, issued out for production and inventory balance or balance of goods at the end of a certain period. It is similar to the three-column inventory valuation sheet used in inventory valuation for it has a column for recording the three aspects of goods or raw materials. That is quantity column, price per unit column and total amount column where by such aspects are portrayed for goods received, issued and balance aspect.

Other additional details in the store ledger are;

• Material description.
• Maximum inventory level.
• Minimum inventory level.
• Material code numbers.
• Re-order levels.
• Re-order quantity.

Bin Cards

Bin cards are documents which almost play the same role like the stores ledger only that this document captures the details of the goods received, issues and balances thereof but in terms of quantity only. That is, the monetary aspect is excluded. At any given time, the store keeper is in a position to know the number of units remaining in store. This bin cards are usually placed where the goods are kept. A separate bin card is kept for each category of good. In fact, this bin cards are similar to the commonly used medical cards made of manilla paper that doctors or clinical officers use when they want to confirm when you lastly visited the hospital and the reason why you where in attendance that time. So, this bin cards don’t portray the monetary aspect of the goods.

Material Coding

Material coding is an auxiliary service that aid in recordkeeping. It is the process of assigning a unique number or value on a good for information management purposes. Just as we know, every person has a name that identifies him or her. The challenge is that the names of different people may be the same and again may be too long. In fact, there are some people with four names or even five. So, in such a case, an identification number is assigned to an individual such as identity card which has an identity number which is not shared. This is coding. The idea behind coding is that we want to shorten the searching exercise such that by a certain code, one can tell who is being addressed. Similarly, for goods in store, we increase identification power by assigning a code number. Therefore, coding is a material management approach which uses symbols or numbers in order to represent specifications or categories of materials, so that it is easy to recognize, track and monitor them.

Some of the key coding principles are;

1. Simple-a code should be brief and possible
2. No repetition-a code should be exclusive such that each item has only one code and that one code should not be used for another purpose.
3. Have room for further adjustments-a code should be something that is flexible.
4. Understandable; codes should be simple to read and understand them and be able to remember what they represent.
5. Distinguishable. Codes should have certainty characteristics so as to avoid any confusion arising from goods which physically turn to be similar.

Stock taking

Stock taking, also currently referred to as inventory taking is one of the inventory storage procedures which entail physical checking or counting of the inventory items remaining in the business premises at the end of a certain period. It specifically entails tracking of available inventory by comparing the totals with what is recorded in the books of accounts. The aim of stock taking is to confirm whether the quantities indicated in the inventory record is the same as the physical counted inventory items. Stock taking is of different methods as explained below;

Perpetual Inventory Taking

This activity entails continuous stock taking throughout the set period. Such that after every transaction of purchase of new inventory or issue of inventory, re-counting is done immediately. To achieve this objective, a record card is used. So, these cards will continuously disclose the total inventory unit balances at the end of the day. The goodness of this approach is that disparities are noticed in time and correction measures are taken.

Periodic Stock Taking

As the name suggests, periodic stock taking is a physical check of the inventory balances in terms of quantity/units which take place after a certain predetermined period such as six months or on monthly basis. The period is regular.

Continuous Stock Taking

This type of stock taking is similar to perpetual stock taking for it is continuous as the name suggests. The only difference is that the exercise is conducted by officers who don’t work in the stores department or any affiliated department. The task again is done on a surprise basis. Any discrepancies are corrected there by then. Another difference is that not all items of inventory are counted. It is discriminative in nature.