Inventory

is goods and materials, held available in stock by a business. Inventory are held both in an effort to forecast demand during manufacturing and in order to manage the fact that manufacture/supply delay is longer than delivery delay, and also to ease the effect of imperfections in the manufacturing process that lower production efficiencies if production capacity stands idle for lack of materials. These imperfections and forcasts result in excess or surplus

inventory. Excess inventory should be returned to the vendor if possible or returned to the supply chain for another consumer.

Identifying excess inventory and remarketing it to other end users is a proven way to maximize on otherwise costly mistakes. Companies like Easy Excess www.Easy-xs.com are raising the bar in terms of maximizing excess recovery by providing the tools needed to both identify and re-market excess. Organized around a web based platform, Easy Excess specialty is to promote your excess. "The seller sets the parameters of the sale, accepts the highest offer and ships the product, remaining in full control of the product and the sale." says D Renzla, managing director. "Our job at Easy Excess is simply to find a buyer for the excess product. We do this by promoting the item 24 hours a day, 7 days a week online, as well as utilizing our direct marketing newsletter, which at last count, totaled over 36,000 registered buyers, manufacturers and dealers from all industries." He continued, "The beauty of our service is that we require all lots be ready to ship, that a photograph of the actual lot be provided and that a starting price be given so that the prospective buyers know the items for sale on Easy-XS.com are real. They come back to purchase because they can tell that the material for sale actually belongs to the seller and that they are buying the material directly for the best price and eliminating risk associated with dealing with unscrupulous dealers." As for the sellers he says, "The sellers are using us because they are tired of selling to brokers who only offer pennies on the dollar and can see the advantages of doing it themselves. It is a very automatic and because it is web based and we do all of the promotion, the seller can input or have us assist, and walk away until the parts are sold. They can be their own broker." "Even those companies who have tried consignment as a way to improve their return, have shifted to using our service because, although they are getting a better split for a return, their inventory still sits on the shelves of the broker, who may be trying to move the inventory of several  customers simultaneously." He continues "If the inventory is not being promoted daily by their broker, it is not selling and even if they are getting a 70% split, 70% of nothing selling is ..nothing." "We like to say, If your excess is listed on Easy Excess, The world will know."

Business inventory

The reasons for keeping stock and having excess inventory.

There are three basic reasons for keeping an inventory:

1. Time - The time lags present in the supply chain, from supplier to user at every stage, requires that you maintain certain amount of inventory to use in this "lead time"

2. Uncertainty - Inventories are maintained as buffers to meet uncertainties in demand, supply and movements of goods.

3. Economies of scale - Ideal condition of "one unit at a time at a place where user needs it, when he needs it" principle tends to incur lots of costs in terms of logistics. So Bulk buying, movement and storing brings in economies of scale, thus inventory.

All these stock reasons can apply to any owner or product stage.

• Buffer stock is held in individual workstations against the possibility that the upstream workstation may be a little delayed in long setup or change-over time. This stock is then used while that change-over is happening. This stock can be eliminated by tools like Easy-xs.com.

These classifications apply along the whole Supply chain not just within a facility or plant.

Where these inventories contain the same or similar items it is often practice to hold all these stocks together before or after the sub-process to which they relate. This 'reduces' costs. Because they are mixed-up together there is no line management of the stock which is due to a particular cause and should be a particular individual's responsibility . Some plants have centralized stock holding across sub-processes which makes the situation even more acute.

Special terms used in dealing with inventory

• Stock Keeping Unit (SKU) is a unique combination of all the components that are assembled into the purchasable item. Therefore any change in the packaging or product is a new SKU. This level of detailed specification assists in managing inventory.

• Stockout means running out of the inventory of an SKU.

• "New old stock"  a term used in business to refer to merchandise being offered for sale which was manufactured long ago but that has never been used. These situations should be avoided because, except in the cases of obsolete items, the excess sould be sold as soon as it is classified as such. Newer products are far more  successful in the remarketing domain Such merchandise may not be produced any more, and the new old stock may represent the only market source of a particular item at the present time.

Inventory examples

While accountants often discuss inventory in terms of goods for sale, organizations - manufacturers, service-providers and not-for-profits - also have inventories (fixtures, furniture, supplies, ...) that they do not intend to sell. Manufacturers', distributors', and wholesalers' inventory tends to cluster in warehouses and retailers' inventory may exist in a warehouse or in a shop or store accessible to customers. Stock ties up cash and if uncontrolled it will be impossible to know the actual level of stocks and therefore impossible to control them. That is where a tool like Easy-XS.com is invaluable. It helps in identifing excess, enterprise wide, and in reducing tied up cash.

Most manufacturing organizations usually divide their "goods for sale" inventory into:

• Raw materials - materials and components scheduled for use in making a product.

• Work in process, WIP - materials and components that have begun their transformation to finished goods.

• Finished goods - goods ready for sale to customers.

• Goods for resale - returned goods that are salable.

• Spare parts

Easy-XS.com is the only excess and surplus disposition company with our unique and proprietary in house material remarketing engine and we specialize in inventories in all of the above categories. Developed for Manufacturers by Manufacturers, list your excess with us today for maximum ROI, exposure and efficiency. All you need to get started is to fill out our simple, free registration .

Logistics or distribution

The logistics chain includes the owners (wholesalers and retailers), manufacturers' agents, and transportation channels that an item passes through between initial manufacture and final purchase by a consumer. At each stage, goods belong (as assets) to the seller until the buyer accepts them. Distribution includes four components:

1. Manufacturers' agents: Distributors who hold and transport a consignment of finished goods for manufacturers without ever owning it. Accountants refer to manufacturers' agents' inventory as "matériel" in order to differentiate it from goods for sale.

2. Transportation: The movement of goods between owners, or between locations of a given owner. The seller owns goods in transit until the buyer accepts them. Sellers or buyers may transport goods but most transportation providers act as the agent of the owner of the goods.

3. Wholesaling: Distributors who buy goods from manufacturers and other suppliers (farmers, fishermen, etc.) for re-sale work in the wholesale industry. A wholesaler's inventory consists of all the products in its warehouse that it has purchased from manufacturers or other suppliers. A produce-wholesaler (or distributor) may buy from distributors in other parts of the world or from local farmers. Food distributors wish to sell their inventory to grocery stores, other distributors, or possibly to consumers.

4. Retailing: A retailer's inventory of goods for sale consists of all the products on its shelves that it has purchased from manufacturers or wholesalers. The store attempts to sell its inventory (soup, bolts, sweaters, or other goods) to consumers.

Accounting perspectives

The basis of Inventory accounting

Inventory needs to be accounted where it is held across accounting period boundaries. With more complex processes, inventories became larger and significant valued items on the balance sheet. This need to value unsold and incomplete goods has driven many new management practise. Perhaps most significant of these are the complexities of fixed cost recovery, transfer pricing, and the separation of direct from indirect costs. This precluded "anticipating income" or "declaring dividends out of capital". It is one of the intangible benefits of Lean and the TPS that process times shorten and stock levels decline to the point where the importance of this activity is hugely reduced and therefore effort, especially managerial, to achieve it can be minimised.

Accounting for Inventory

Each country has its own rules about accounting for inventory that fit with their financial reporting rules.

So for example, Easy Excess adhers to organizations in the U.S. who define inventory to suit their needs within US Generally Accepted Accounting Practices (GAAP), the rules defined by the Financial Accounting Standards Board (FASB) (and others) and enforced by the U.S. Securities and Exchange Commission (SEC) and other federal and state agencies. Other countries often have similar arrangements but with their own GAAP and national agencies instead.

It is intentional that financial accounting uses standards that allow the public to compare firms' performance, cost accounting functions internally to an organization and potentially with much greater flexibility. When compared to other methods of disposing of excess materials, performance is what counts all while maintaining these standards.

The internal costing/valuation of inventory can be complex. Whereas in the past most enterprises ran simple one process factories, today with multi-stage process companies there is much inventory that would once have been finished goods which is now held as 'work-in-process' (WIP). This needs to be valued in the accounts but the valuation is a management decision since there is no market for the partially finished product. This somewhat arbitrary 'valuation' of WIP combined with the allocation of overheads to it has led to some unintended and undesirable results. We are familiar with the unfinished goods challenges and wip and have been successful in re-marketing goods of all types and stages of completion.

Financial accounting

An organization's inventory can appear a mixed blessing, since it counts as an asset on the balance sheet, but it also ties up money that could serve for other purposes and requires additional expense for its protection. Inventory may also cause significant tax expenses, depending on particular countries' laws regarding depreciation of inventory, as in Thor Power Tool Company v. Commissioner.

Inventory appears as a [[current asset]] on an organization's balance sheet because the organization can, in principle, turn it into cash by selling it. Some organizations hold larger inventories than their operations require in order to inflate their apparent asset value and their perceived profitability.

In addition to the money tied up by acquiring inventory, inventory also brings associated costs for warehouse space, for utilities, and for insurance to cover staff to handle and protect it, fire and other disasters, obsolescence, shrinkage (theft and errors), and others. Such holding costs can mount up: between a third and a half of its acquisition value per year.

Businesses that stock too little inventory cannot take advantage of large orders from customers if they cannot deliver. The conflicting objectives of cost control and customer service often pit an organization's financial and operating managers against its sales and marketing departments. Sales people, in particular, often receive sales commission payments, so unavailable goods may reduce their potential personal income. This conflict can be minimised by reducing production time to being near or less than customer expected delivery time. This effort, known as "Lean production" will significantly reduce working capital tied up in inventory and reduce manufacturing costs (See the Toyota Production System).

The role of a cost accountant on the 21st-century in a manufacturing organization

By helping the organization to make better decisions, the accountants can help the public sector to change in a very positive way that delivers increased value for the taxpayer’s investment. Finance is connected to most, if not all, of the key business processes within the organization. It should be steering the stewardship and accountability systems that ensure that the organization is conducting its business in an appropriate, ethical manner. An excess inventory process should be implements in all organizations which provide maximum return and minimumm dead inventory.  It is critical that these foundations are firmly laid. So often they are the litmus test by which public confidence in the institution is either won or lost.

Finance should also be providing the information, analysis and advice to enable the organizations’ service managers to operate effectively. This goes beyond the traditional preoccupation with budgets – how much have we spent so far, how much have we left to spend? With our online format and real time reporting, making information available to the strategic partners within an organization is simple. It is about helping the organization to better understand its own performance. That means making the connections and understanding the relationships between given inputs – and the outputs and outcomes that they achieve. It is also about understanding and actively managing risks within the organization and its activities.

FIFO vs. LIFO accounting

Main article: FIFO and LIFO accounting

When a dealer sells goods from inventory, the value of the inventory is reduced by the cost of goods sold (CoG sold). Commodity items that one cannot track individually, accountants must choose a method that fits the nature of the sale. Two popular methods exist: FIFO and LIFO accounting first in - first out, last in - first out. FIFO regards the first unit that arrived in inventory as the first one sold. LIFO considers the last unit arriving in inventory as the first one sold. Which method an accountant selects can have a significant effect on net income and book value and, in turn, on taxation. Let us work with your accounting department to maximize the inventory cycle and reduce tax ramifications. Using LIFO accounting for inventory, a company generally reports lower net income and lower book value, due to the effects of inflation. This generally results in lower taxation. Due to LIFO's potential to skew inventory value, UK GAAP and IAS have effectively banned LIFO inventory accounting.

In computer science, FIFO and LIFO correspond to the queue and stack data structures, respectively. In fact, the acronyms are commonly used to denote the corresponding data structures.

Standard cost accounting

Standard cost accounting uses ratios called efficiencies that compare the labor and materials actually used to produce a good and those that the same goods would have required under "standard" conditions. As long as similar actual and standard conditions obtain, few problems arise. Unfortunately, standard cost accounting methods developed about 100 years ago, when labor comprised the most important cost in manufactured goods. Standard methods continue to emphasize labor efficiency.

Standard cost accounting can hurt managers, workers, and firms in several ways. For example, a policy decision to increase inventory can harm a manufacturing managers' performance evaluation. Increasing inventory requires increased production, which means that processes must operate at higher rates. When (not if) something goes wrong, the process takes longer and uses more than the standard labor time. The manager appears responsible for the excess, even though s/he has no control over the production requirement or the problem. Easy Excess (www.easy-xs.com ) is familiar with the demands plpaced on purchasing managers and can react to inventory excesses and return.

In adverse economic times, firms use the same efficiencies to downsize, rightsize, or otherwise reduce their labor force. Workers laid off under those circumstances have even less control over excess inventory and cost efficiencies than their managers.

Many financial and cost accountants have agreed for many years on the desirability of replacing standard cost accounting. They have not, however, found a successor.

National accounts

Inventories also play an important role in national accounts and the analysis of the business cycle. Some short-term macroeconomic fluctuations are attributed to the inventory cycle.

Distressed inventory

Also known as distressed or expired stock, distressed inventory is inventory whose potential to be sold at a normal cost has or will soon pass. In certain industries it could also mean that the stock is or will soon be impossible to sell. It also includes computer or consumer-electronic equipment that is obsolescent or discontinued and whose manufacturer is unable to support it. Time is of the essence when identifing and re-selling excess.

For your excess inventory disposal needs, read more about Easy Excess and our unique method of improving the Return On Investment for your excess/surplus materials and components.