Inventory Adjustments :Author : Debabrata Sarkar E-Mail : sarkar.debabrata@gmail.com Date : 06-Jul-2008 Inventory Adjustments


Agenda :Agenda Introduction to Inventory Adjustments Methods for Inventory Adjustments Inventory Adjustment Buckets Inventory Calculations Retail Best Practice Business Flow Context Business Flow Diagram


Introduction :Introduction Inventory Adjustments are use to synchronize the inventory/stock to account for things that occur outside the normal business (e.g. receipts, sales, stock counts etc.). Inventory Adjustments impact the stock ledger as the inventory value for a location is impacted. Ending stock value will be decreased/increased (Either over-valued or de-valued). Inventory Adjustments can be made online in RMS or they can be received from external systems, such as Warehouse Management or Store Operation System via interface programs. Items with inventory in RMS can be inventory adjustment items. An inventory adjustment item should be a transaction-level item. If an item/location relation doesn’t exist in RMS for adjustment item RMS will create it automatically.


Types of Inventory Adjustments :Types of Inventory Adjustments There are two types of Inventory Adjustments can be made: Stock on hand: The quantity of stock on hand, or sellable stock, is increased or decreased. Both the quantity and value of the stock on hand are adjusted in the stock ledger. Unavailable inventory: The quantity of stock on hand does not change, but the quantity of unavailable stock, or non-sellable stock, is increased or decreased. In the stock ledger, the adjustment is recorded as a transfer between stock on hand and unavailable inventory. No adjustment is made to the stock value.


Inventory Adjustments – Reason Codes :Inventory Adjustments – Reason Codes Whenever an inventory adjustment is performed, a reason code must be assigned to the adjustment. Reason codes are user defined, using just a code and a definition. Additionally, for each reason code defined, the type must also be indicated. There are two types of reason codes: COGS – also called non-shrinkage adjustments, this reason code will be included in the ending inventory calculations. Non-COGS – also called shrinkage adjustments, this reason code will not impact ending inventory calculations in the stock ledger if budgeted shrink is used. When interfacing inventory adjustment transaction the G/L, transactions can be separated by reason code.


Agenda :Agenda Introduction to Inventory Adjustments Methods for Inventory Adjustments Inventory Adjustment Buckets Inventory Calculations Retail Best Practice Business Flow Context Business Flow Diagram


Methods for Inventory Adjustments :Methods for Inventory Adjustments User can do Inventory Adjustments using RMS. By Item: can adjust an item at one or more warehouses/stores within the same process By Store/Warehouse: can adjust items at one location (warehouse/store) within in the same process External systems such as Warehouse Management System or Store Operation System can initiate Inventory Adjustments. All adjusted quantities needs to be recorded in RMS Stock Ledger by interface programs RMS creates Inventory Adjustments automatically: When user do transfer reconciliation, RMS will create Inventory Adjustments for From/To Location based on Adjustment Types NB: “If there are Inventory Adjustments in Headquarter using RMS, Adjusted Quantities should be interfaced to Warehouse System or Store Operation System as well in order to make consistency in Stock-on-hand between RMS and External Systems”.


Store/WH Inventory Adjustments – Data Flow :Store/WH Inventory Adjustments – Data Flow STORE/WH System Inventory Adjustment: RMS Financial System RDW 1. Initiate Inventory Adjustments 2. Inventory Adjustments 3. Update stock ledger and on hand/unavailable inventory 4a. Stock Ledger (Inventory Adjustments) 4b. Inventory Adjustments STORE/WH System RMS Financial System RDW 1. Initiate Stock Comparison 2. SOH Snapshot 4a. Stock Ledger (Inventory Adjustments) 4b. Inventory Adjustments Stock Comparison: 3. Update Stock Ledger and Stock-on-hand


Agenda :Agenda Introduction to Inventory Adjustments Methods for Inventory Adjustments Inventory Adjustment Buckets Inventory Calculations Retail Best Practice Business Flow Context Business Flow Diagram


Inventory Bucket :Inventory Bucket


Inventory Bucket :Inventory Bucket


Inventory Bucket :Inventory Bucket


Agenda :Agenda Introduction to Inventory Adjustments Methods for Inventory Adjustments Inventory Adjustment Buckets Inventory Calculations Retail Best Practice Business Flow Context Business Flow Diagram


Inventory Calculations :Inventory Calculations Current Available = SOH + Pack Comp SOH – (Transfer Reserved + Pack Comp Transfer Reserved + Non Sellable – RTV + Customer Reserved + Pack Comp Customer Reserved + Customer Backorder + Pack Comp Customer Backorder Owned Inventory = SOH + Pack Comp SOH + In Transit + Pack Comp In Transit Future Available = (SOH + Pack Comp SOH + In Transit + Pack Comp In Transit + Transfer Expected + Pack Comp Transfer Expected + On Order + Inbound Allocations) – (RTV + Outbound Allocations + Transfer Reserved + Pack Comp Transfer Reserved + Non Sellable + Customer Reserved + Pack Comp Customer Reserved + Customer Backorder + Pack Comp Customer Backorder)


Agenda :Agenda Introduction to Inventory Adjustments Methods for Inventory Adjustments Inventory Adjustment Buckets Inventory Calculations Retail Best Practice Business Flow Context Business Flow Diagram


Retail Best Practice :Retail Best Practice In case of Tesco, UK, it is strictly forbidden doing inventory adjustment manually using RMS Forms. They believe that inventory adjustment must be initiated from Warehouse Management System or Store Operation System. Commercial margin has different meaning from Operational Margin. Commercial Margin is Buyer’s margin whereas Operational Margin is Store’s margin. Commercial Margin does not include ‘Inventory Adjustment Amount’ In general, retailers manage various types of inventory adjustment reason codes for reporting purposes. e.g. damaged In general, inventory adjustment amounts are posted to General Ledger


Agenda :Agenda Introduction to Inventory Adjustments Methods for Inventory Adjustments Inventory Adjustment Buckets Inventory Calculations Retail Best Practice Business Flow Context Business Flow Diagram


Business Flow Context :Business Flow Context


Agenda :Agenda Introduction to Inventory Adjustments Methods for Inventory Adjustments Inventory Adjustment Buckets Inventory Calculations Retail Best Practice Business Flow Context Business Flow Diagram


Business Flow Diagram :Business Flow Diagram


Business Flow Diagram :Business Flow Diagram