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Key Inventory Concepts

posted Jan 3, 2016, 9:09 AM by Admin Manager   [ updated Jan 9, 2016, 4:57 AM ]
The following are key concepts that you should familiarize yourself with before digging into the remainder of the help topics. These concepts will provide helpful.

Inventory Data Fields

 Name The name by which you refer to this item. This is a free-form field and you can use any name that makes sense to you.
 Active The state for this item. As your products age, you may find it helpful to inactivate those items that you no longer sell. This will remove them from the main screens and exclude them from most reports.
 Item # This is the number or code by which you will refer to this item in your business. We recommend that you come up with some scheme for creating these numbers that makes sense for you.  Note that this field can be numbers and letters. Sometimes it helps to prefix a numeric item number with a code that distinguishes the item from other items. This field should be unique, but the program does not enforce this.
 Vendor Item # This is the number or code that the vendor that you purchased this product from refers to this item. Having this in your inventory helps in the reordering process.  This field is not required.
 Category In the program preferences screen you can create categories. You should do this before adding inventory items. In the drop down box, pick the category for your items.
 Vendor This is the vendor that you purchased this product from. In the drop down box, pick the appropriate vendor.   
 Available This is the amount of available inventory or On Hand inventory for this item. Available inventory is ready for sale.  Available inventory is increased by purchases and decreased by sales. It can also be decreased through the creation of assemblies and allocation of inventory to another item.  See Allocated below.
 Allocated Allocated inventory is the quantity of an item that has been used in the configuration of another item (an assembly). For those items that are “assemblies” the items that have been assembled are listed in the components table on the bottom half of the inventory screen. It is these items that will have an “allocated” quantity on their item record. Allocated is somewhat like available, in that the amount of the item is still in your inventory. The difference is that it’s allocated to another item. The allocated count is reduced when you sell the “Assembly” and increased when you build new assemblies.
 On Order On order is the quantity of an item that is part of an outstanding purchase order. This is a purchase order that has been created, but not yet received.
 On Hold On hold is the quantity of an item that is part of an outstanding sale. This sale has been created in the system, but not yet marked as shipped.
 Sold This is the number of units of this item that have been sold.
 LocationThe default location that this item is stocked.
 UOMThe default unit of measure that this item is stored in.
 Re Order Level You can set a reorder level that will cause the system to highlight those items that are below this level. This is helpful in making sure that you maintain a particular stocking level of your inventory items.
 Last Cost This is the last cost that you purchased this item for.
 Average Cost This is the average cost across all purchases of this item.
 Markup This is the percentage markup as defined by the price and cost of this item. It helps you see the margin you’ll get from the sale of your items.
 Unit Price You are able to set the price that you sell items for. You can override this when you make sales, but this is the default price that your item sells for. The price field is also used to value your inventory. Inventory valuation is calculated as available inventory * item price.
 Components Components are other items in your inventory that are assembled together to form a new item. To add components to an item drag them from the inventory list onto the components table or click the Add button at the bottom of the components table. An inventory item that has components is referred to as an “assembly”.
 Image mInventory allows you to attach images of your items to the item record. You do this on the Image tab. Drag an image to the page to attach it
 Comments You can maintain free-formed comments for each inventory item.

Custom Assemblies

An assembly is a grouping of items in your inventory that make up a new inventory item. The primary workflow here supports a configuration or BOM model in which you are able to recognize the use of inventory items in the production of a new item. The default cost of an assembly is made up of the cost of the items that are part of the assembly. When you tell mInventory that you have "built" the assembly you have the option of overriding the default cost. This allows you to account for work or other costs that may have been involved in the production process. 

Updating Inventory Counts

As you can see from the data fields above, mInventory maintains several inventory levels for you. These levels are automatically updated based on things you do with an item (buy, sell, adjust, build). You can’t just edit these levels directly. mInventory supports the following workflows to update inventory levels.

"Purchase Orders" - Use this workflow when you purchase inventory items from a vendor. This can be a wholesale/retail model or you could be purchasing raw materials that you transform into products using the Assemblies workflow described below.

"Manufacturing" - Use this workflow when your company manufactures products and you simply want to record how many of each item you made. In this workflow, you create items for each of your manufactured products and then acknowledge a production run to update item quantities/costs. 

"Assembly Builds" - Use this workflow when an item in your inventory is made up of the combination of other inventory items. The Inventory Items screen has a table at the bottom that allows you to identify the components of an assembly. Companies that purchase products and transform them into other products typically use this workflow.

"Manual Adjustments" - Adjustments are changes that are made to inventory levels because of some issue with a particular item. These can be due to theft, damage, unexpected receipts or some other reason. These are not frequently used and are not meant as a way to receive stock into inventory.   

Inventory Costing (LIFO/FIFO/Last Cost/Average Cost)

There are a handful of generally accepted methods to value inventory. These are:

FIFO Costing – This is the First-In, First-Out inventory method. In this model the first item that was received into inventory is the first item that is sold. This is typically used for perishable goods that have a limited shelf life. The actual cost if each item is recorded and used when calculating inventory cost or cost of goods sold.

LIFO Costing – This is the Last-In, First-Out inventory method. In this model it really doesn’t matter which order the items are received and sold. A good example here is a bin of screws at a hardware store. They are all the same and typically the bin of screws is refilled by adding new screws on top of existing. The actual cost if each item is recorded and used when calculating inventory cost or cost of goods sold.

Average Cost – This model can be used with both FIFO and LIFO tracking but inventory cost is handled differently. For each item, an average cost is calculated based on historic purchases. When an item is valued or sold, this average cost is used.

Last Cost – Similar to average cost, but the last purchase price of the inventory item is used instead. 
  
mInventory supports Last Cost and Average Cost methods of inventory cost accounting. We recommend that you use Average Cost as it better represents the true cost of an item. You can configure whether the program uses Average Cost or Last Cost in the preferences screen.

Inventory History

You can quickly get a view of what has taken place with respect to an inventory item by reviewing the history tab on the inventory item screen. Here you will see an historic view of all purchases, sales, adjustments, builds, etc… This comes in handy if you are troubleshooting inventory levels.

Locked Items

Once you begin purchasing and selling an inventory item you are prohibited from making certain changes to the item. This is to protect the integrity of the data and ensure that the item is treated consistently. This lock is around the components. You cannot add, delete or change components on an item that has been purchased, built, adjusted or sold. If you find that you need to do this, you should duplicate the item and make the changes on the new item. Make sure that you give this new item a new item number to differentiate it from the original.

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