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ERP 101: Inventory – Maintaining Accurate and Reliable Data

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Our highly lauded ERP 101 webinar series has completed its ninth episode.  In the first eight episodes we covered a range of topics central to a modern ERP system, including:

  • A simple definition of an ERP system, and how it evolved over the last four decades.
  • The definition of Engineering Item Masters and Bills of Materials and their significance in ERP systems.
  • Shop floor routings and how they are used.
  • A detailed look at Manufacturing Requirements Planning (MRP) and how it fits into the ERP system.
  • The role of Purchasing in modern ERP systems.
  • The creation of “supplies” and “demands” using Work Orders.

In the ninth episode, we look at inventory, a vital facet of ERP/MRP systems.

To begin with, lets look at what comprises physical inventory.  It includes the material used in production.  This material is tracked as it moves into and out of stores and may be lot- or serial-controlled.  It does not include indirect material used in production such as lubricants, tools and other safety equipment.  The costs of these indirect items are usually captured as overhead.

What is Inventory?

Lets take a closer look at what comprises inventory, and how it fits into the larger operational scenario at a manufacturer.  Lets start with where inventory comes from:

One of the primary sources of inventory is work orders.  As work orders are finished and manufactured items are received, inventory is created.  Another is purchased items, which come in through purchase order receipts.  Inventory can also come from transfers from other divisions and sites.  But that is not all.  Inventory adjustments need to be done on a regular basis.  These adjustments may be regular cycle count adjustments or manual adjustments.

Now, lets look at where inventory goes.

Work orders as you may recall create supply and demand.  They may require raw material to build sub-assemblies.  There may be subcontract requirements, where the manufacturer sends material to subcontractors who build parts and sub-assemblies and send them back.  Inventory may be transferred between sites.  Of course, there are manual and cycle count adjustments that may find that there is not as much inventory in the stores as expected.

As you can see, there is constant movement of inventory into and out of stores over the course of normal manufacturing operations, and the ERP system is critical to ensuring that inventory is tracked accurately,

What Does the ERP System Do?

The ERP inventory system provides the ability to track inventory in stores.  It uses Location Types to define inventory status (good, suspect, scrap, etc.).  Each inventory item record contains important planning information used by the MRP system.  It holds data specific to how an item is defined for inventory purposes such as the current lot/serial information for parts defined as lot and/or serial-controlled.  It also maintains historical lot/serial information for future traceability.

Under project control, it segregates inventory by project, maintains accounts use for various inventory purposes (i.e. scrap account, standard cost, etc.) and holds costing information on each item (material, labor, overhead) with the ability to make cost adjustments.  It also holds item history for usage and other operational reports.

The ERP Inventory system also provides important transactional functions.  It provides means to adjust inventory balances either manually or through cycle count programs.   It helps track the movement of inventory, between divisions, sites and/or location id’s.  It records the transfer of inventory between projects.  It also provides standard cost adjustment parameters.

Watch Webinar 9 Today!

As with the previous Rootstock ERP 101 episodes, this one uses simple English so all employees in your manufacturing team can understand what ERP is and how they all can leverage it to make your company more successful.

To see it, simply click here.

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