Stock on Consignment

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Consignment stock is composed of goods that are legally owned by one party (consignor) but are to be sold, shipped or held in store by an agent (consignee). This type of inventory is prevalent among manufacturers. With a consignment arrangement, the consignor retains ownership of the goods and the consignee is not required to pay for the goods until after they have been sold. The consignee can even decide to return any leftover stock without worrying about monetary repercussions.

The main benefits of consignment deals are as follows:

1) The main benefit to be derived from consignment agreement is that the consignee saves money on inventory costs. As the consignee, pay the consignor only after you have sold the merchandise. This improves cash flow on the part of the consignee.

2) You actually save time since you spend no time waiting for merchandise when you run out of stock. Most often, the consignor automatically replenishes your stock right after you sell some or all of the goods. It is of interest to the consignor to keep you well stocked.

3) It is more convenient compared to a drop ship arrangement because the consignee has merchandise on hand, easily accessible and ready for sale. It is more convenient also because no worries exist about running out of stock because resupplying the merchandise occurs regularly.

Whether you move goods that are consigned or sell your own in-house merchandise, a comprehensive and robust inventory management software is crucial. SIMMS 3013 offers all the features you will need to manage your business. Visit www.simmssoftware.com or email sales@kcsi.ca for more information.

The Functions of Inventory

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Inventory serves particular functions for the company that holds it. The most common categories of functions are as follows:

  • Anticipation inventory – stock you have on hand to fit a pre-conceived tally of sold stock (based either on weekly, monthly or quarterly amounts)
  • Cycle stock – stock that is involved in the standard receipt and sales process for sale to customers.
  • Hedge inventories – stock that is purchased to hedge against price increases and inflation. Salesmen commonly contact purchasing agents shortly before a price increase goes into effect. This gives the buyer a chance to purchase material, in excess of current need, at a price that is lower than it would be if the buyer waited until after the price increase occurs.
  • Safety stock (buffer inventory) – stock that is kept to cover instances where sudden rush or demand occurs.
  • Smoothing inventories – stock that is used to keep the revenue flow smooth within a system, best accomplished by using the LIFO valuation method.
  • Transit stock / pipeline inventory – additional stock that is on its way from manufacturers/vendors or is in transit between two locations within the supply chain.

 

Variance Reports

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Variance reports compare an expectation with what actually
occurred. They can be based on any factor necessary for
tracking an expectation. Some factors are dollars, labor, consumption rates, lines/pieces per hour, or trucks per day.

Three main sections with two subsections each:

1. Materials price variance & materials quantity variance
(If the company is paying too much for materials or using too much materials for a product, that is an unfavorable variance.
If the company is getting materials for less than the standard cost or is using less than the standard materials for a product, that would be favorable).

2. Labor rate variance & labor efficiency variance.
Labor rate variance measures deviation from standard in the average hourly rate paid to direct labor workers.
Labor efficiency variance attempts to measure the productivity of direct labor.

3. Variable overhead spending variance & variable overhead efficiency variance.

A typical threshold is 10% and $5,000, although this may differ substantially for larger departments. Using this as an example, the supply expense above would not require an explanation.

The percent variance is 10%, but the dollar variance is only $1,000. This eliminates the need for unnecessary work in researching and identifying small variances. Similarly, if an item was off budget by $10,000, but was off a small percent, there would be no need for explanation. Some companies only require an explanation if there is a negative variance.

If the variance meets both conditions, the manager needs to research and explain why. It may be things have changed from the budget. Volume may have changed increased, or there may have been unexpected price increases.

The manager should be the best judge of what differs from the budget. If the budget was prepared by someone else, consult any notes there may be. If there are none, the manager’s opinion is still likely to be better than an accountant’s.

Creating a sensible, well-documented budget provides for better explanations of variances. Detailed, accurate explanations demonstrate credibility to administration.

Inventory Days

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Managing stock is crucial in a company that sells products to make a profit. Calculating inventory days is an indicator of how well the business is doing in terms of inventory management. It requires the determination of the cost of goods sold and average inventory in a given period. Most often, your Inventory Turnover Ratio (ITR) is calculated to measure the performance of overall inventory and to find out how the company is meeting product demand.

Average Inventory for Period
You can find this amount on the balance sheet.
Add Beginning Inventory to the Ending Inventory.
For instance, If you have a Beginning Inventory of 275,000 and an Ending Inventory of 350,000, them together and divide it by two.
275,000 + 350,000 = 625,000
With 625,000 divided by two, your average inventory is 312,500.

To calculate the Days In Inventory (DII) for your stock, use the following formula:

Inventory Days = 365 x (Average Inventory / Cost of Goods Sold)

Our average inventory (from above) is 312,500.
Our Cost of Goods Sold is $550,000.
Thus, with 365 x 0.5681818, we have 207.38 Days In Inventory.

For all the useful features of your inventory management, choose SIMMS 2013 IMS. Visit www.simmssoftware.com or email sales@kcsi.ca

Costing of Vendors

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SIMMS Inventory Management software provides a dynamic feature for controlling the numerous aspects of the process of Vendor Costing. Businesses often receive the same items from various vendors based upon their availability and best costs. With SIMMS, each item can be set with particular aliases (vendor-specific names or numbers) and separate costs for each vendor; this enables the user to choose at any time the vendor he/she wants following quick phone calls to the various vendors to ascertain if the item is in stock.

Users can combine multiple items needed from one particular vendor onto one particular purchase order, thus providing the fluidity of purchasing most companies require. The aliases allow for the accurate selection of items with their vendor-specific details, assuring that the items you need are clearly listed for your suppliers. Users can easily access references to the vendors used and edits needed can be performed quickly and easily.

As costs change and/or items pass from usage to be replaced by different or newer pieces, old costs and items can be amended or replaced smoothly, and lists of the new items can be produced in various report forms so your sales department can keep up with the pieces your company now offers. When combined with the seamless link between SIMMS’ inventory information and industry-standard accounting features, the addition or removal of stock pieces within the system give you count control and accurate financial information so you know where the bottom line is at all times. SIMMS’ Vendor Costing feature is just one more tool that will help you keep ahead of your competition. Visit www.simmssoftware.com or email sales@kcsi.ca today.

SIMMS 2013’s Warranty Tracking

Warranty Software

SIMMS 2013’s Warranty Tracking allows for easy access to warranteed items and the immediate access to warranty information so that replacement and repair processes can be begun and their progress can be tracked. Warranties are assignable on the manufacture of an item or when it is received into the SIMMS system.

Using SIMMS’ extensive Return Merchandise Authorization (RMA) and Return to Vendor (RTV) features, your customers should never have to wait long for their replacement or repair of items under warranty. Drop-ships of items directly from an item’s vendors is yet another feature to streamline this process. Settings in SIMMS allow for easy access to items that may have passed their warranty dates so that users can avoid beginning the replacement or repair process as any RMAs come into the system.

Stock count precision and tracking of items in the blink of an eye are two of the advantages of SIMMS, as new users can immediately add warranty information to goods that are received on invoices in combination with other stock. Once received with assigned data, stock in the system carries that data permanently, which allows for your customer’s satisfaction and provides valuable data about those items that may have a consistent record of required repairs and/or replacements. All these features add to SIMMS strength in supplying its users with all pertinent data at the click of a mouse.

Visit www.simmssoftware.com or email sales@kcsi.ca to learn more today.

Capitalization of Inventory

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Capitalization is a process that applies specific certain costs against revenues regarding inventory. It can benefit your company by allowing you to capitalize both direct and indirect expenses. Most often when rules for capitalization exist, the capitalization of costs can be gleaned from three phases: pre-production, production and pre-sales. Using capitalization, your company can postpone the reporting of expenses related to inventory and can benefit a business on paper through the increase in its net income.

To use capitalization, companies need to have up-to-date records of all stocked items. When you sell an item, you need to record the capitalized production expenses that went into making the item saleable. Often, established rules demand of companies the adjustment of some stock from non-capitalized to capitalized or vice-versa.

Additionally, because the effect of capitalization effects the total of your declared taxable income your company’s tax liability is directly affected. Based on the most common rules, your business may only recover costs using either the cost of sale of the products, depreciation or amortization.

Deciding whether amortization is for you is an important step, and before you can make your best choice, you need your inventory accuracy at its very best so that the numbers you use both suit any existing capitalization rules and supply the accurate progress of your business in all of its other financial goals. SIMMS Inventory and Accounting software is just the system you need to provide you with both these criteria. Visit www.simmssoftware.com or email sales@kcsi.ca to learn more.

COGS On The Balance Sheet

Inventory is listed as an asset that has disposable characteristics. Inventory may be the largest current asset. On a balance sheet, the value of inventory is the cost required to replace it if the inventory were destroyed, lost, or damaged. Inventory includes goods ready for sale, as well as raw material and partially completed products that will be for sale when they are completed. It appears as an asset, as such:

simms_inventory

To create your accounting entry for inventory, first create a new line in your balance sheet under “Current Assets” called “Inventory.” The order doesn’t matter, but most accountants prefer to list inventory right after “Cash” and “Accounts Receivable” on the balance sheet.

Next, take inventory of all of the goods in stock and count the dollar total. In most cases, the value will be determined by the cost you paid for the goods (not the retail price of the goods). Use this question to determine the value: what would it cost you to replace the goods in your possession if they were lost, stolen or damaged? Be sure to include any returns that you received back from customers in your total for inventory.

Third, add the value of any raw materials that you have in your possession that will be used to produce goods — these are assets too even though they haven’t been formed into salable goods yet. (This would only apply to a company that manufactures its own products for sale.)

Next, write in the inventory balance in dollars. Round the amount up or down to the next whole dollar.

Last, add the inventory in with your other assets to get your total current assets and record that total at the bottom of this section of your balance sheet.

The Cost of Goods Sold statement contains the following details:

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For your income statement to be accurate, it requires a properly-calculated Cost Of Goods Sold. A great many businesses produce income statements that do not use opening and closing inventory as details, and profit margins are adversely effected by these inaccuracies.

Frequency and Cycle Counts

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Regular cycle counts help you keep an accurate assessment of your inventory. Cycle Counting by Frequency is a newer and more accurate method of analysis that pulls more focus to the most important stock in your warehouse. Important stock includes the seemingly-trivial bits and gadgets necessary for you to produce the items you sell the most. Included in such items may be cardboard or plastic packaging, price tags, and every nut or bolt or clip required to prepare it for sale.

From a philosophy point of view, cycle counts by frequency illuminate the often-unknown fact that the items most frequently touched have a higher probability of being inaccurate. If you have a bin of clips that is accessed once a day by one person there is one chance each day for the inventory to be off by the end of the day. However, if that bin is accessed twice a day by five people there are ten chances that the inventory will be off by the end of the day. Even though these clips may be worth pennies each and you have electronic components that are worth thousands each, if they are only accessed once a week they have a much less chance of having their inventory count off at the end of each work day.

Zones Structure is a necessary condition for the frequency cycle count. The zones should be labeled as raw materials, subassemblies, miscellaneous items, and finished goods. Once the zones exist, you next take a count of the inventory in every zone and research how often the items were accessed over a set time, such as 90 days; every transaction in or out counts as one. Once the research is complete each zone is assigned a frequency number. To do this, you take the amount of times the zone was accessed and dividing by the number of items in that zone and multiplying by six – this approach is to make sure that all items are counted at least once every six months. As each item in a zone hits its frequency number, a cycle count card is printed and that item is counted.

The Cycle Count by Frequency method ensures that the most frequently used items are counted most often as they have the highest probability of being less accurate in their levels than areas in your facility that are less frequently used. Whether you employ this method or prefer others, the accuracy of your counts and the flexibility to conduct them at any random moment requires a robust and versatile inventory management system. SIMMS 2013 is the optimum program for such comprehensive demands. Visit www.simmssoftware.com or email sales@kcsi.ca to learn more today.

Yield Management Systems

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A Yield Management System (YMS) is an optimized process that occasionally incorporates reviews of transactions for goods or services already supplied as well as for goods or services to be supplied in the future. In addition, it reviews statistical information surrounding events, competitive market information like prices, seasonal sales patterns, and numerous other sales factors. YMS models are designed to predict the entire demand for all products and services they provide, specifically by price points and market segments. Usually, the entire demand will surpass what any particular company can produce in the period analyzed, thus each YMS strives to minimize a company’s outputs in order to maximize revenue.

Each YMS has at its core the following question: “Considering the current operating constraints of our company, what is the best mix of products and/or services for us to produce and sell in a set period, using what prices, to produce our highest anticipated revenue?”

The optimization that comes from YMS can aid your company in adjusting prices and allocating materials among your various market segments to ultimately maximize anticipated revenues. This can be achieved at different levels of detail. In the overall, such as all seats for all home games during a baseball season; in groups, such as all seats at a particular single home game; in a single market, such as sales revenues whenever a certain rival team visits the home team; in a certain product field, such as a reduced cost for all Tuesday home games.

Industries that employ YMS are airlines, hotels, stadiums and other venues with a fixed number of seats, and advertising. After an advance forecast of demand and application of a flexible pricing plan, consumers will sort themselves into categories based on their available funds (only being able to afford mid-week games), the particulars of their demands (must go to all weekend or night games) or purchase times (late reservations costing more than early ones).

Applying these conditions upon the consumer, a YMS’s ultimate goal provides an optimized variety of available goods or services at a variety of prices at varying times or for various features. The YMS also maintains an array of possible purchases over a set time period that is both reliable and at a high level.

Good Yield Management Systems maximize later sales at the highest possible prices. Companies over time will offer lower prices for the majority of their ball games, with these higher discounts contributing a greater volume of day-to-day income, saving their marginally-raised prices only for peak times, thus producing the highest possible overall revenue. The management of inventory items becomes more about the supply being able to maintain the demand rate of the company’s market or industry.