TAKING AN INVENTORY
17. Before a stores department can be successfully organized an inventory must be taken, for this inventory will be the basis on which the records of the stores department are founded.
Stores record systems are quite commonly referred to as perpetual inventories, and, occasionally, such a system is pointed to as a failure for the reason that at the end of the year, or other fiscal period, the inventory, that is, the actual physical inventory of the stock, does not check with the records. The fact that systems of stores records have been regarded as inventories in fact, is responsible for most so-called failures. Regarded in its proper relation, a perpetual inventory is nothing more nor less than an accurate accounting of all goods that come into and go out of the establishment, these records to be checked by an actual physical inventory with such regularity and frequency that the accounts can safely be considered as exhibiting a correct inventory. In considering the question, how to take an inventory, we refer, therefore, to an actual physical inventory, that is, a count of every article in stock. When once this inventory is taken and properly recorded, it is entirely possible to install and maintain systems which will make it unnecessary to inventory all of the physical property at any one time.
It has been the general custom in a large manufacturing establishment to shut down for a period of greater or less duration, running all the way from two or three days to as many weeks, for the purpose of taking an inventory. Since it has been considered necessary to shut down for this purpose, inventories have, as a rule, been taken but once a year. All this is unnecessary, for, with proper methods, it is possible to take even a complete inventory without perceptible interruption of the operation of the plant. The first step is to decide, at just what time the inventory is to be taken, and to have all foremen get their shops in readiness. This means a general cleaning up which will make it easy to locate and count, weigh, or measure the materials, tools, supplies, and work in process. Then, at a specified time the work of taking the inventory should be started simultaneously in every shop.
The making of the necessary records will be in charge of a clerk who will be assisted by the foremen and as many helpers as may be required. Each clerk is given a supply of tags, ruled as shown in Fig. 14. These are made in the form of shipping tags, but larger than the usual sizes used for that purpose. It will be noted that the tag is perforated near the top. The portion above the perforation shows the season and date of inventory, the card number, and the department. The card number and the department are repeated on the lower part of the card, which is also divided into two parts. The upper half is for an inventory of material, finished stores, and work in process, divided as to description, name of last operation, the quantity, and the unit. The lower half is for an inventory of tools, machinery, equipment, and supplies, with provision for the description, quantity, unit, numbers, and location. By unit is meant the unit in which the material or supplies are priced, as pounds, yards, dozen, gross, etc.
The first operation is to attach one of these cards, which are consecutively numbered, to each machine, tool, bin, rack, or pile of material. Then the clerk and his assistants will go through the shop and weigh and count the material represented by each tag, recording the items on the tag itself. As this is done, the lower half of the tag is torn off. Since a record is kept of the card numbers given to each clerk, it will be necessary for him to turn in every one, and if care is used in placing the tag on every article before the count has begun, there is no possibility of material being overlooked. As a further precaution against the loss of cards, the remaining part of the tag is afterward removed and sent to the office for checking against the main record. As the tag is used merely to insure a record of quantities of all property, it is unnecessary to include prices.
Fig. 14. Labor-Saving Inventory Tag
With this method an inventory can be taken in a very short time. There are cases on record where an inventory in the largest industrial enterprises has been taken by this method without shutting down the plant in any department for a longer period than two days.
18. Inventory Records. When the physical inventory has been taken, the next step is to record quantities and prices, and make the extensions that the record may show total values. The records of the inventory should be classified; that is, all material or equipment of a certain class should be recorded on the same form, so that the total value of each class can be ascertained.
For a manufacturing business, the inventory is subdivided as follows:
Machinery and Equipment.
Machine Tools.
Small Tools.
Drawings and Patterns.
Materials and Supplies.
Parts and Finished Stores.
Work in Process.
Manufactured Goods.
One form might be made to answer the purpose for all these inventories, but as certain special information is needed in each case, it is considered the better plan to use special forms. We, accordingly, illustrate forms for each of these classes.
Machinery and Equipment. Under this heading is listed all machinery, furniture, office appliances, and equipment of all classes required in the operation of the business. The form for the inventory is shown in Fig. 15, this being a loose-leaf form, about 10 x 12 inches in size.
For this section, a sheet is used for each specific class of equipment, and, where the same class of equipment is required in different buildings or departments, a sheet is used for each department. For instance, all typewriters used in a given department will be inventoried on one sheet, and no other equipment will be inventoried on the same sheet.
The information given at the head of the sheet includes the location, cost, estimated life, name, series number, our number, and from whom purchased. The form provides for a record of date (meaning date purchased), and description of the equipment, original cost, cost of additions and repairs, per cent and amount of depreciation, and the net value. Reference to this record shows the exact number of machines of a given class in use and just where they are being used.
Machine Tools. Under the head of machine tools, an inventory covers all tools of this character, whether purchased or manufactured in the plant. Since large plants usually manufacture their own machine tools, this form is used to show date of manufacture or purchase, description, cost of material and labor, per cent, and amount added to cover the factory burden, and the total cost. Like the form used for machinery and equipment, all machine tools of a given class should be inventoried on the same sheet, Fig. 16.
Fig. 15. Loose-Leaf Form for an Inventory of Machinery and Equipment
Fig. 16. Inventory Form for Machine Tools
Fig. 17. Inventory Record of Small Tools
Fig. 18. Form of Inventory Sheet for Drawings and Patterns
Fig. 19. Form of Inventory Sheet for Materials and Supplies
Fig. 20. An Inventory of Parts and Finished Stores
Fig. 21. Special Form for Inventory of Work in Process
Fig. 22. Sheet for an Inventory of Manufactured Goods
Small Tools. Most small tools are purchased, but some of them may be made in the plant. These tools may be purchased singly, or in lots of one dozen, or in other quantities. To meet these conditions the form, Fig. 17, provides for a record of date of purchase, description, quantity, unit, material and labor costs, per cent and amount of burden, and total cost. When the tools are purchased ready for use, only the last money column is used.
Drawings and Patterns. This inventory includes all drawings and patterns that are in use or of value to the business. In placing a value on this property, conservatism is necessary. A new pattern is supposedly worth what it cost to manufacture it. But a pattern may become obsolete in a very short time. It is necessary, therefore, when taking the inventory, to estimate the probable life of all patterns, basing this estimate not only on wear and tear, but on the probability of their being replaced by later models. The cost of drawings and patterns should be entirely absorbed in the cost of the goods manufactured, and to cover this a very liberal rate of depreciation must be provided. In the inventory form we do not show the depreciation, as we consider it more practicable to take a complete inventory, and make a new appraisal of drawings and patterns at the end of each fiscal period. The form given for this inventory, Fig. 18, shows date put in stock, the number, description, and details of cost.
Material and Supplies. The inventory of material and supplies includes all material which goes into the construction of the goods and all supplies required in the operation of the plant.
In recording this inventory, supplies and material should be kept separate, and each should be thoroughly classified. One sheet should show but one special class; that is, if one of the items is hardware, nothing but the hardware inventory should be included on the same sheet. This form, shown in Fig. 19, gives the description, the purpose for which the material is used, quantity in stock, unit of measure, unit value, and total value.
Parts and Finished Stores. This section is intended to include all finished parts in a plant manufacturing parts to be later assembled into complete machines, also any finished stores or semi-completed parts. Under the latter head would come such items as castings, which are made in advance, to be used as needed. This inventory is recorded on the form shown in Fig. 20, giving the description, for what used, the number of the part, quantity, unit, unit value, and total value.
Work in Process. Under the head of work in process is included all partially completed orders in the plant at the time of inventory. If an efficient cost system has been maintained, it will not be a difficult matter to arrive at accurate costs of all such material. Without a cost system it is necessary to use extreme care in estimating the cost of material and labor to date.
One of the most important items of information in this inventory is the last operation, which means the last completed operation. It is necessary to have this information before we can figure the actual cost. The form for this inventory, Fig. 21, includes description, name of last operation, cost of material, cost of labor, per cent and amount of burden, and total value.
Manufactured Goods. The inventory of manufactured goods includes all goods completed ready for the market. In a trading business this would include the regular stock in trade. Fig. 22 shows a form for the inventory of manufactured goods, which, with slight changes, would answer the purpose for the stock in a trading business. The form shows the order number (meaning the shop order number on which the goods were manufactured), the description, the quantity, the material and labor costs, the burden, and total value.
When these inventories are completed, and the extensions made, it will be seen that a complete record of values of all physical property is provided. From these records the ledger accounts should be adjusted so that all records will correspond. The records also furnish the necessary information from which to make the stores record, which is necessary when installing the system.
These inventory sheets may be filed either in the drawers of a vertical file or in a loose-leaf binder, though the latter is preferred. The sheets for each class should be kept by themselves and classified as explained above. The index may be alphabetical, or blank indexes, on which the names of the classes are written, may be used. The sheets in each class should be numbered consecutively and kept in numerical sequence.
A CORNER IN THE GENERAL OFFICES OF THE DOBIE FOUNDRY & MACHINE CO., NIAGARA FALLS, N. Y.