MISys began developing software to help companies track manufacturing inventory, specifically raw materials and Work-in-Process (WIP). Most accounting software does not do that well which can really skew the cost of goods sold (COGS) and have the wrong value for year end reporting for tax purposes.
Here’s a typical conversation between the bookkeeper at a manufacturer with an outside accountant:
Accountant: ...and what is your inventory value?
Business Bookkeeper: What do you need it to be to avoid taxes?
Accountant: No really, what is the value?
Business Bookkeeper: Honestly, we don’t know for sure.
Accountant: Really? How do you track inventory?
Business Bookkeeper: We don’t really have a system. Sometimes we use raw materials before they are received into inventory, causing it to go negative. Sometimes we use raw materials but don’t make the entry into the system. And sometimes we ship product to a customer without recording the completion of the finished product. You know, we’re busy getting orders out the door!? So we eyeball what we need and maintain what we think are safety stock levels. We get overnight deliveries for a production run when we need it. And we figure it’ll all come out in the wash in January.
Sound familiar? So what happens when you don’t have a system that accurately tracks inventory?
- You inspect the stock shelves to know what production orders you can run or promise. You start doing regular physical inventory counts – monthly or even weekly.
- You order stuff you don’t need, and don’t order stuff you do need, bloating some inventories and shorting others, lowering order fulfillment rates.
- You’re busy, but you’re not making any money. You figure out your actual COGS only AFTER the order was quoted, built and shipped to the customer and then it’s too late.
- You're spending too much money carrying your inventory. Carrying costs (financing, insurance, taxes, warehousing, management) are conservatively 10-30% of the value of the inventory.
So what do you do? You get a system like MISys Manufacturing.
MISys Manufacturing software uses PERPETUAL inventory management, updating the inventory counts and values in real time based on each transaction that occurs (receipt, dispense to a production order, completed production order, transfer to sales inventory). This is a much better way to track inventory than relying on an annual physical count.
To make sure your inventory is accurate, use CYCLE COUNTING - periodic physical counts of a selection of inventory items. It will give you confidence that your inventory number is right and relieves the need to do a full physical inventory at the end of the year.
Why is this important? It saves a lot, a lot, a lot of time and will uncover any problems with your system early.
With accurate inventory counts, you will be able to give customers reliable estimates of when a product could be ready. With Buyers Advice, MISys will tell you if you have all of items on hand to make a product. With Available to Promise, MISys will tell you the soonest date you could deliver it based on inventory levels, delivery times and production times. No more running to the warehouse to check inventory levels.
To simplify data entry, you can always use “backflushing” for standard items. Backflushing will remove the quantities of all of the component parts of a finished good.
Making money. That is why you are in business, right? If you can reduce those expedited shipping costs, lower your inventory holding expenses and track your COGS as you are making the products, you’d be in a much better position to make money. That should interest you.
Lastly, using the Material Requirements Planning module will enable you to lower your inventory levels by 25% or more. MRP calculates what you need to buy and when, and what you need to build and when based on historical demand or a sales forecast which you load into the system. Less space, less investment, less expense, all while improving order fulfillment and customer satisfaction.
